The pound benefited from disappointing economic news out of the U.S. and a thinly-veiled threat from an official with the International Monetary Fund to make strong gains today on both the dollar and the euro.
LetÃ¢â‚¬â„¢s start with the dollar. Weaker-than-expected economic data from the U.S. indicated that first quarter growth fell to an annualized rate of 1.8 percent compared to the 3.1 percent rate of growth recorded in the final quarter of 2010. The latest employment report was also discouraging with 424,000 new unemployment claims filed last week. This is an increase of 10,000 new claims and is considerably more than the 404,000 claims predicted.
Traders expressed their dissatisfaction by turning to sterling and by the end of the day, had pushed the pound to a two-week high against the greenback. While all this was going on, Jean-Claude Juncker, head of the Eurozone group of finance ministers, was hinting that the International Monetary Fund may not be prepared to hand over the next installment of emergency funding to Greece in June as originally scheduled.
The problem, according to Juncker, is that Greece (and by extension the European Union) has yet to provide sufficient financing guarantees as required by the IMF. Without formal assurances that Greece has the required financing in place together with a timetable to reduce government spending, the IMF may not release the funds it conditionally agreed to make available as part of the original rescue plan.
Naturally, this sent a shiver through the market leading ultimately to a sell-off of the euro in favor of the pound. For the day, sterling gained nearly half a percent on the euro rising to 86.26 pence per euro by 4:30 p.m. in London matching a high not seen since early March.
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