Sterling vs Euro down due to GDP

Tuesday 26th July 2011
Good morning. Sterling is down this morning, ahead of GDP figures later today that are expected to show the economy has slowed. This has pushed the Pound down against other currencies, as the rate snapshot as at 08:30am below shows:

GBP/EUR 1.1266
GBP/USD 1.6335
GBP/AUD 1.4942
GBP/NZD 1.8736
GBP/CAD 1.5398
GBP/ZAR 10.941
GBP/JPY 127.50
GBP/DKK 8.3961
GBP/NOK 8.7538
• EUR/USD 1.4494

UK GDP Figures today

UK growth figures published at 09:30am this morning are expected to show that the UK economy slowed between April and June. They may even show it contracted, some analysts forecast, after growth of 0.5% in the first quarter. This news has weakened Sterling, and exchange rates are down in anticipation of poor figures.

A weak figure from the Office for National Statistics will put pressure on the government to boost growth. The problem for the government is its plan for reducing the deficit relies on a certain amount of growth in the economy to increase the amount it raises through taxation and reduce the amount it spends on benefits.

However some organisations, including the International Monetary Fund (IMF), have supported the government’s policy despite the lack of growth in the economy. The IMF said last month that the UK’s high inflation and low growth had been unexpected but were largely temporary and that no changes to policy were yet needed.

Lacklustre growth or a contraction in the UK would add to expectations the Bank of England will keep interest rates on hold until late 2012 , and increase speculation policymakers may consider another round of quantitative easing, pumping more cash into the market to kickstart the economy. This would only weaken Sterling further.

Today’s Data

Lot’s of data from the UK today, including UK House Prices and UK GDP which if poor could push the Pound lower. Germany releases measures of Consumer Confidence and Retail Sales. From the USA we have Home Sales and Consumer Confidence.

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