UK GDP causes a spike in the market or a sign of strength to come?
UK GDP causes a spike in the market or a sign of strength to come
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UK GDP data was released showing a 0.8% growth, double what was expected on Tuesday. This lead to the strongest day for the Pound in recent months which saw rates increase over 2% against some major currencies, 1% against the US Dollar and 1.4% against the Canadian Dollar.
This continued yesterday into another fairly strong day for the Pound and the horizon for Sterling seemed a little bit brighter at close of business yesterday than it did at open on Monday.GDP data was particularly important for this Quarter as Adam Posen made his publicstatement that the UK may needfurther stimulus in the form of QE official as they were released in the BofEminutes lastWednesday. This GDP figuremeans that it is unlikely this callwill be rallied by the otherMPC members as QE will now be pushed back until 2011. It is still far too early to say that it is unlikely further stimulus will be used but if GDP figures remain strong in Q4 (difficult due to budget cuts) then QE may become redundant as the economy shows it is recovering well enough. Visit http://www.currencies.co.uk/registration.aspx, if you have a Sterling requirement and fill in an account applicationto have aSpecialist Currency Broker get in touch.
However Nationwide House Price data was released this morning and both MoM and YoY figures came out worse than expected. Whilst House Prices continue to fall in the UK it has been reported that the average deposit for the first time buyer now sits at around 37000, a rather staggering figure considering the economy is plagued by unemployment and double dip recession concerns. Focusing on this data suggests that this Sterling strength is more of a short term spike than a sign of strength to come. With budget cuts due to settle in during November it will be interesting to see just how much data is effected. As I have said before it is very difficult to predict given that we have not faced such severe austerity measures before, but logic dictates that the Pound may be in for a very tough run up to Christmas this year. In my personal opinion I would think that Q4 GDP figures will show that we have struggled in the back end of this year as numerous data sets retract as Consumer Confidence naturally falls. This could translate into rates of around 1.10 against the Euro, sub 2 levels against the New Zealand Dollar and the high 1.40s against the Swiss Franc.
What do you think about the budget cuts impact on the Pound? Feel free to post comments below or email the author directly if you have any upcoming Currency Requirement - jfm@currencies.co.uk.