UK GDP and BoE minutes effect on Sterling

Wednesday 25th January 2011
Good morning. The Pound briefly hit a 4 week low vs the Euro yesterday, before recovering to around €1.20. Sterling also rose against the US Dollar, despite many in the markets predicting today could well generate weakness for the Pound. At 09:30 am today we will see the latest GDP figures, and the minutes to the most recent Bank of England (BoE) minutes – both of which could cause significant volatility for Sterling. We’ll focus on this today, after the usual snapshot of yesterdays movements:

~Currency Movements on Tuesday 24th January~

BoE Minutes and GDP – Important day for the Pound

Today at 09:30 we will see 2 important UK data releases that will have an impact on the future of Sterling. GDP figures are released which will show if the economy is growing or not, and at what pace. It’s a measure of the total value of all goods and services produced by the UK, and is considered as a broad measure of the UK economic activity.

We predict that the monthly figure will show a -0.1% contraction. 2 consecutive periods of contraction mean we’re officially back in recession, so if the number is indeed negative it could weaken the Pound. If it’s zero or above, expect the Pound to make modest gains.

We also have the BoE minutes released at the same time. This shows the discussions and voting in the decision 2 weeks ago to hold interest rates and Quantitative Easing. If it shows they discussed QE, or the discussions hint it’s on the way in February, expect weakness in the Pound.

What effect could this have on exchange rates?

Analysts said upcoming British data and events could add to concerns about the prospect of more quantitative easing as austerity measures and the impact of the euro zone debt crisis hurt the economy, potentially weighing further on sterling.

BoE policymaker Adam Posen said on Monday Britain’s economic outlook had improved slightly but more quantitative easing would probably still be needed, so for the most part it could be that this is already priced in to rates. markets move as much (sometimes more so) on rumour than fact, so as it’s widely predicted, it’s difficult to predict what effect this might have on exchange rates.

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