UK easing out of the red as the eurozone struggles to maintain growth, while the US pushes further towards economic recovery
16/May/2013 • Currency Updates•
Sir Mervyn King stated yesterday that the British economy is getting back on track, mentioning “a recovery is in sight.” Fears of a triple dip recession have been avoided and employment figures were in the tens of thousands in March. He believes that growth will increase from 0.3 percent in the initial quarter to 0.5 percent in the following quarter.
There is still uncertainty over the outlook though as the main negative factor that looms over sterling’s stability are the issues emerging from events taking place in the eurozone, Sir Mervyn King warned.
Despite the positive tone, yesterday’s inflation report by the BoE and King’s speech was unable to stop the depreciation of sterling which found upside attempts restricted. There are no dockets out of the U.K today leaving sterling at the mercy of risk trends.
Analysts note that under the current increase in volatility, a possible transition in the trend is looking more likely.
For the fifth straight day, the USD has beat all of its major counterparts in the market. This came amid data that failed to match expectations; the US producer price index fell 0.7% in April, which was marginally lower than the 0.6% decline initially forecast. In contrast, the core version that excludes food and energy prices in its calculations came in with a 0.1% rise, just as expected. More bad data followed as the Empire State Manufacturing Index published a negative 1.4 reading, opposed to the positive 3.6 consensus expectation. Despite the negative releases, the dollar did not lose a lot of ground against the euro or sterling with views maintaining that anticipated growth for the US will be achieved and that it will be the first major economy to reduce or eradicate its asset purchase programme.
On a global view, the demand for US debt from overseas investors slowed in March as the US economy showed signs of improvement. China has maintained its title of being the largest foreign creditor to America in March, continuing to purchase over 100 billion USD over the last months. This backing from the second largest economy in the world is a clear showing that it is confident the US economy is on a speedy recovery.
There is a large amount of data being released from the US today, most important being the USD consumer price index for April released at 1:30pm.
Figures from Brussels yesterday showed that the eurozone shrank for the sixth consecutive quarter. GDP was down 0.2% compared to the previous quarter and unemployment for the area has hit 12.1%
Figures from France show that it has reached another period of recession after two successive negative 0.2% GDP figures for the past two quarters.
The German economy grew 0.1% compared to the previous decline of 0.7% however this growth is largely negligible given the country’s place as the foundation of the euro-zone’s economic stability. Italian and Spanish GDP also shrank 0.5% along with many of the other member states.
Most eyes will be focused on the CPI figures coming out today at 10am. Any variance from the forecasted 1.2% consensus will cause movement in the EUR.