US GDP shows better-than-expected figure of 1.7% growth whilst FOMC gives little guidance on tapering, ahead of BoE and ECB today

Tom Tong01/Aug/2013Currency Updates

GBP

Yesterday was a quiet day with regards to data coming out of the UK. Despite recently positive data, the pound has been depreciating against both the common currency and the USD. Sterling has declined 0.5% against the common currency and 0.4% against the Dollar. This fall was generated by negative Shop Price Index figures released in the UK, and better-than-expected GDP figures released from the US.

The Nielsen Co. Shop Price Index fell for the third consecutive month in a row, falling 0.5 percent in July from a 0.2 percent drop the previous month. The drop against the euro was the lowest in four months. Sterling posted an overall 2.3% drop this month, the most since January – this four-day losing streak is the longest since June 28.
In other news, UK government bonds have returned 0.8% since Carney took over in July, outperforming their US and German counterparts.

At 11am GMT today, the BoE will release its second statement under new governor Mark Carney. The general consensus on the BoE announcement today is that the Monetary Policy committee will maintain its bond-purchasing program at 375 Billion pounds. The BoE is expected to reaffirm its commitment to low interest rates today, and Carney is expected to provide a clearer indication on forward guidance. However, many are already turning their heads towards next week’s Quarterly Inflation Report.

EUR

After an early weakening of the common currency against the Dollar we saw it regain it’s losses through the morning with positive data coming out of Italy and Germany. German unemployment fell by 7,000 beating analysts expectations although the overall unemployment rate remained flat in the Eurozone at 12.1%. The Euro also found support after the Federal Reserve provided no fresh clues on when the Central Bank would slow its pace of asset purchases.

Although there was positive news in regards to unemployment, there was a fall in spending by shoppers in the 3 largest Eurozone economy’s, serving to dampen any early celebrations. However, low annual inflation, stable at 1.6%, means the ECB will be able to act if the recovery falters. Greece’s debt is also causing concern with the IMF stating that it faces an €11bn hole in its finances, as a number of member states are reluctant to contribute to its latest bailout contribution.

The eurozone will be poised for a number of high impact data releases today with some minor PMI’s coming out early in the London session, with the eurozone’s manufacturing PMI expected to stay at 50.1. Then the interest rate decision followed by the monetary policy statement, the interest rate is widely expected to remain at 0.5% and for Draghi to continue with a dovish view for August.

USD

Yesterday, real gross domestic product data showed that there was a 1.7% annual increase in the second quarter of 2013 (from a forecast of 1.1%). This primarily reflects optimistic contributions from exports and non-residential fixed investments. It shows the U.S economy has grew more than projected in the second quarter, whilst other reports also showed that manufacturing and hiring also accelerated this month.

Yesterday the Federal Reserve concluded their two-day meeting in which they announced that it will maintain its $85 billion in monthly bond purchases. As a result the dollar declined for the first time in three days. Policy makers also stated that ‘’economic growth will pick up from its recent pace and the unemployment rate will gradually decline’’.

Today’s main top tier data is unemployment claims and ISM Manufacturing PMI.

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Written by Tom Tong

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