Today we’ll see if the US has exited recession, and this may cause some volatility for the pound today, even though there is little UK data. This morning rates are as follows:
- GBP/EUR 1.1148
- GBP/USD 1.6437
- GBP/AUD 1.8207
- GBP/NZD 2.2655
- GBP/CAD 1.7694
- GBP/CHF 1.6846
- GBP/JPY 149.20
- GBP/ZAR 12.894
- EUR/USD 1.4740
US Gross Domestic Product
Official figures due later are expected to show that the US economy has come out of recession, but analysts warn the continuing recovery will be slow. The data, set to be released by the Commerce Department at 1230 GMT, is tipped to show that the US economy grew about 3% between July and September.
If so, then it will leave the UK the only major economy still in recession, other than Spain that entered recession after the UK. This positive news from the US may boost risk sentiment, and drive investment towards riskier currencies such as the pound.
Commentators say the growth has been greatly helped by President Obama’s $787bn (£480bn) stimulus package. Some now fear growth will fall markedly when this impetus comes to an end.
“It’s good to have the economy growing again,” said Brian Bethune, economist at IHS Global Insight. “But we don’t think that rate of growth is sustainable because it is distorted by all the government stimulus.” He added. So, as the US is already expected to exit recession, and there are fears that growth will slow in the coming months, this may mean investors keep funds in the safe haven US Dollar.
Attention is already turning toward the BoE’s Monetary Policy Committee meeting next week and whether its 175 billion pound quantitative easing programme will be expanded.
A poll conducted by Reuters between Oct 26-28 found that roughly two thirds of economists surveyed expected the MPC to expand QE. Of these, a slight majority see an increase of 25 billion pounds, the rest forecast a 50 billion rise.Under its QE programme, the Bank of England has since March been buying assets to inject liquidity into the economy, contributing to sterling weakness.
Shock news last week that the UK economy contracted by 0.4 percent in the third quarter prompted investors to reassess their previous expectations that quantitative easing may be paused in November and snapped a two-week rally in the pound.
So, if more QE is announced next week, expect further Sterling weakness. Markets are now in limbo awaiting this news to see where the pound may go in the coming months.
Ger – Import Prices, US – Gross Domestic Product, US – Personal Consumption, EU – Consumer Sentiment, EU – Business Climate, US – Jobless Claims.
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