As anticipated, the US dollar gathered strength yesterday following data showing the euro zone contracted more than the market expected.

As anticipated, the US dollar gathered strength yesterday following data showing the euro zone contracted more than the market expected.

With investors already seeking the safe haven of the US dollar ahead of today’s G20 summit, gains in the US dollar were further exacerbated after the Eurostat revealed that the euro zone contracted by 0.6%, more than the 0.4% the market expected. Data also revealed that individually France, Germany and Italy also contracted more than anticipated following a sharp decline in exports and investments. Figures from Greece also showed that unemployment hit a new high of 27%.

Although the outlook for the UK economy still remains negative following Wednesday’s quarterly inflation report, news of the continued recession in the euro zone provided respite for the pound, as it gained against the single currency. Further cues for gains in the pound will be judged from today’s UK retail sales figure which is expected to rise to 0.8%.

The only other notable economic data came from the US yesterday, as the Department of Labour revealed that the number of people filing for new claims of unemployment declined to 341,000, better than market expectations.

As stated above, given that the outlook for the UK economy still remains negative, clients are suggested to use any bounces in the currency rates to their advantage to buy their required currency before the possibility of a continuation of the downtrend.

Key Announcements:

All day – G20 Summit.

9.30am – GBP – Retails Sales: Expected to rise to 0.8%.

10.00am – EUR – Trade Balance: Expected to reduce to €13.1bln.

14.15pm – USD – Industrial Production: Expected to decline to 0.2%.

14.55pm – USD – Reuters/Michigan Consumer Sentiment Index: Expected to rise to 74.8.