US economic growth soars to keep rate hike in focus
28/Aug/2015 • Currency Updates•
Sterling declined to a one-and-a-half month low versus the Dollar on Thursday, driven 0.5% lower by strong data across the pond.
Slightly underwhelming housing data released by Nationwide also weighed on the Pound yesterday morning. The monthly data release showed that British house prices rose in August at its slowest pace in more than two years. Prices increased by 3.2% on a year previous, its slowest pace since June 2013, compared to 3.5% that was registered in July. The data suggests that annual house prices are stabilising close to the pace of earnings growth, which stood at just under three percent in the second quarter. It may, however, be difficult for this trend to be maintained unless there’s a pickup in construction activity.
The latest revision of second quarter GDP growth figures, set for release at 9.30am this morning, is not expected to show any change from the initial 2.6% expansion, and thus will likely be overlooked by Sterling. It’s worth noting that Bank of England Governor Mark Carney will be speaking at the Jackson Hole Symposium on Saturday.
The Euro ended lower for another day against the US Dollar yesterday, down by 0.75% versus Greenback and a further 0.3% lower against the Pound.
Thursday began with some very encouraging data from Spain, which showed that the Spanish economy expanded by its fastest pace in over eight years. The economy grew at an annualised 3.1% in the second quarter following 0.9% growth from the first three months of the year. Meanwhile, German import prices surprised on the downside, declining by 1.7% in the year to July, providing another clear sign that the European Central Bank may have to consider expanding its current asset purchasing programme. The central bank announced yesterday that lending to Eurozone households and firms accelerated moderately in July, up by 1.9%, with lending to non-financial corporations also increasing by 0.9%.
The monthly consumer confidence data from the European Commission at 10am London time this morning, coupled with inflation data from Germany in early afternoon, will likely cause moderate volatility in the Euro today.
Encouragingly strong GDP data in the US caused the US Dollar to rally strongly for a third day, up by 0.7% against its basket of currencies.
Economic growth in the US in the second quarter surged well above what was initially reported according to the latest revision on Thursday. Gross domestic product expanded by an annualised 3.7%, its fastest pace since the third quarter of last year, and well above the 2.3% initial estimate quoted last month. Quarter-on-quarter, the economy grew by 0.6%. This impressive increase in growth was driven primarily by robust levels of domestic demand, which increased at 3.3%, up from the 2.5% pace that was originally quoted. The trade deficit narrowed, with overall output expanding by over two percent in the first half of the year.
These solid growth figures, supported by a continued tightening in the labour market, suggest that the US economy is in good shape for an interest rate hike this year. The key, however, remains how the Federal Reserve views the global situation, namely the tailwinds from the recent slowdown in China. Meanwhile, the weekly jobless claims continued to impress yesterday, falling from 277,000 to 271,000. Pending home sales increased by 7.2%, although slightly down on forecasts, suggesting a surge in momentum in the first half of the year might be levelling off.
The Jackson Hole Symposium in Wyoming continues in the US today, with a speech from Fed member Stanley Fischer on Saturday likely to steal focus. Personal spending and income data at 1.30pm BST this afternoon will also be worth noting.
REST OF THE WORLD
A key economic advisor to Japanese Prime Minister Shinzo Abe claimed that the Bank of Japan should not be rushed into action in response to the recent market turmoil in China. Meanwhile, there were concerns that Poland’s economy and currency, the Zloty, could suffer if large number of Poles convert Swiss Franc mortgages into Zlotys.