Markets await GBP GDP figures

Tom Tong27/Apr/2011Currency Updates

GBP

The pound fell to a two week low versus the euro yesterday and is set to face more pressure if GDP data, due out this morning at 09:30, comes out weaker than expected and further sets back expectations for an interest raise hike in the near future.

The fear is that the figure will come below 0%, which would technically mean that the UK will have slipped back into a recession, which would heap massive amounts of selling pressure onto the pound. However, it is more likely that the figure will come out slightly above expectations, giving the pound some near-time respite.

USD

The dollar dropped against a range of currencies yesterday as investors expect no surprises from the US Federal Reserve’s policy meeting later in the day while the Japanese yen was dented briefly after Standard and Poor’s cut its rating outlook.

Many traders expect the dollar’s index against a basket of currencies to descend to an all-time low after it hit a new three-year low on Wednesday, pummelled by widespread expectations that the Federal Reserve will drop no hint of a policy tightening, even though it will complete its quantitative easing policy in June as planned.

The yen weakened against the dollar from one month-high earlier in the day on the back of a fall in the two-year US Treasury yield to one-month lows.

The Fed is expected to say it is in no hurry to scale back its massive support for the economic recovery, in contrast to the European Central Bank, which hiked rates last month and looked poised to deliver more to combat the threat of rising inflation.

EUR

Yesterday saw the euro strengthen against the greenback for the seventh day of trading – the longest period since March 2009, resulting in profitable returns on long positions.

The European Central Bank raised interest rates to 1.25%, which is against the ECB targets which aimed to keep inflation below 2% for this month. However, because of sovereign debt issues escalating further because of growing crisis issues on the back of peripheral countries Greece, Portugal and Ireland, this has been the main driver in pushing up the interest rate.

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Written by Tom Tong

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