Spain’s borrowing costs nearly doubled and the British Pound advanced to a six month high versus the Dollar.

At yesterday’s auction, Spain’s short term borrowing costs nearly doubled compared to a month ago, giving investors further doubts on its shrinking economy and a new flare-up in the Eurozone crisis. The Netherlands however managed to sell €2Billion of bonds yesterday, attracting solid demand for its debt despite the government resigning after they failed to approve the country’s budget.

The Pound reached an almost six- month high against the Dollar and the UK 1Q GDP is coming out today, which may show that the UK avoided a recession and that Britain’s financing requirements have fallen.

The Pound is becoming a safe haven at the moment and is performing well when the market is both risks on and off. Even though UK inflation unexpectedly accelerated for the first time in six months in March, we saw the UK government cut its deficit by £11 billion year or year, bringing down the government reduction plans in accordance to the OBR’s figures. The debt now stands at £126 billion.

Positive figures across the pond also restricted dollar strength as new home sales continued to perform well in the month of March and the Richmond Fed Manufacturing index doubled.

We have also seen Barclays revise their 3 month and 6 month predictions. They mainly see GBP/EUR going to 1.27 and then 1.32 within the year. However, a decline against the US Dollar is still on the cards (something that we have been saying for a while!)

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