Market awaits UK GDP figures as single currency weakens on PMI data
25/Apr/2013 • Currency Updates•
Sterling gained momentum against its most frequently traded pairs yesterday as the market factored in the results of today’s GDP release. Analysts are expecting the release to confirm that the UK economy has avoided a triple dip recession. If we see a surprise negative reading, expect sterling’s recent gains to be heavily unwound.
The pound is up 0.6% against the euro for the week and 0.3% against the dollar. There was also good news for UK companies as the BoE confirmed that it intended to extend its ‘Funding for Lending Scheme’. This is aimed at providing banks with the required liquidity to extend cheaper loans. Hopefully, if the banks pass on the funding, it will help stimulate growth in the UK economy. The UK also held a successful debt auction yesterday with the 10 year gilt yield dropping three basis points.
The single currency continued to react to negative economic news, with the most alarming being the weaker than expected German PMI and IFO readings. These have raised a real fear that the eurozone’s largest economy, and mainstay of economic strength is beginning to suffer.
Dr Konrad, a senior adviser to Chancellor Merkel has stated that the euro has ” a limited chance of survival ” and could come to an end in the next five years. It must be stated though that this goes against the wider German view, and may be seen as posturing against the idea that Germany must single-handedly drag the eurozone out of recession
This has caused the euro to post increasingly lower lows against the dollar on a daily basis. There is increasing speculation that in the wake of this downward trend the ECB will be forced into a rate cut. This is by no means guaranteed though with another option being a loan program to the smaller countries, and potentially Spain. Figures this morning released show the Spanish Unemployment Survey at a record 27.16 %. It is a quiet day in the eurozone, with no significant data releases today.
The dollar remained shy of the 100 USD/JPY mark, nursing the effects of worse than expected durable goods orders data. In recent sessions the dollar has flirted at the 100 USD/JPY level, which has not been hit since 2009. Poor data in the US is raising concerns about its economic path as markets have been focused on fundamental economic data primarily on earning reports.
Today we turn our attention to the strength of the labour market in the US with the initial jobless claims data release this afternoon. Previous claims reached 352k with consensus printing a small but positive decline to 351k. Other data releases in the market will come from the US Secretary of the Treasury, Jacob Lew, who will communicate the Presidents stance on key economic issues.
The most important data release and indicator of the US will be GDP results on Friday afternoon where we expect the economy to hit 3% growth; up from 2.6% previously.