By Jonathan Watson

Inflation figures for the UK fell from 3.2% to 3.1%, reflecting the global slowdown. Japanese GDP has this week fallen and the US has been suffering from reduced output.

The UK inflation figures however are not a particularly sharp fall, and it is possible that June’s figures were high due to the World Cup boosting retail sales.

The pound remains strong I believe due to other currencies suffering from global slowdown fears. The US had been a safe haven currency but there has been a large sell off following real fears of the US re entering recession. The cable breeching 1.60 has strengthened back to the 1.56 mark, the currency  ironically probably benefiting from a flight to safety.

The euro had been trading very strongly following positive stress test results, but we have seen these gains eradicated  now the novelty of the tests have worn off and focus has returned to the fiscal woes of the eurozone countries.

I would expect the pound to remain strong for the medium term as the euro remains a risk and the dollars recovery is fragile.

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