Euro weakens after sharp decline in growth

Tom Tong17/Aug/2011Currency Updates

GBP

Sterling hit a one week high against the dollar on Tuesday as data showed that inflation has risen more than anticipated for July, in turn reducing the risk of more quantitative easing by the Bank of England. Annual inflation hit 4.4% in July and there is now a strong possibility of inflation hitting 5% or more by the end of the year. Today’s major focus from the UK will be on the Bank of England minutes.

EUR

The euro weakened during Tuesday trading as poor GDP figures showed an unexpectedly sharp economic slowdown. The key GDP reading showed Germany grew by only 0.1% during the second quarter of this year, much less than the predicted 0.5% expansion, while the Eurozone grew by a mere 0.2%. The on-going debt crisis and a faltering global recovery is exacerbating Europe’s problems, with euro area exports dropping a seasonally adjusted 4.7% in June from the previous month. The major economic data out of Europe today comes in the form of the Consumer Price Index, released at 10:00.

USD

Yesterday’s data from the US came out largely in line with expectations, with housing starts and building permits failing to impress but industrial production for the month posting a figure that beat market expectations. Rating agency Fitch also affirmed the US’s AAA rating, helping to keep the greenback somewhat supported.

With the FOMC choosing to hold their wait and see approach for the remainder of the year, the possibility of increased monetary intervention in the form of QE3 should the dreaded double dip recession arise, there is a good possibility that the USD’s bearish sentiment could continue.

Today’s data for the US comes in the form of producer price index, which measures the average change in primary markets.

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Written by Tom Tong

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