UK GDP figures please investors, as G10 FX stability set to come to an end with upcoming Eurozone CPI and US FOMC statement

Tom Tong30/Apr/2014Currency Updates

GBP

London closed with sterling up across the board and equity markets saw a fair rally in the FTSE. GDP came in slightly below market expectations yesterday, however it still saw uptick from the last quarter.

Despite UK GDP coming in below called, the difference was minor and the general picture is still overwhelmingly positive. The reading initiated a slight sterling dip however losses were later retraced.

The economy grew by a solid 0.8% in Q1 of this year. If you exclude oil and gas figures, UK output is now equal with the levels seen prior to the recession. Compared with Q1 last year, GDP is 3.1% higher making economic growth its fastest since 2007. It would appear the growth is balanced across the economy with the services sector growing quickest followed by construction and manufacturing.

Minutes from the BoE last week proclaimed that a change in interest rates is not happening anytime soon. This seems realistic as yesterday’s data is underpinned by rapidly falling unemployment and earnings growth is finally matching inflation and so with the market this strong, a change in interest rates would be risky.

No data out today.

EUR

London closed with the euro down against both sterling and the dollar after it came under pressure yesterday. The Asian session has been fairly flat and the market opens with the euro mostly trading sideways.

Euro pressure stemmed from weaker than expected German inflation figures. As Germany is the largest Eurozone economy any negative readings tend to hold ramifications for the currency. The weaker than expected reading from Germany will also raise speculation of further easing in Europe. Preliminary German data showed annual inflation was 1.1% in April. This is poor timing as lately chatter across the market and within the ECB has focused on the risk of further deflation hitting the Eurozone, thus this reading increases pressure for the ECB to act. Presently investors appear cautious to take positions prior to this morning’s CPI release. All eyes will be firmly fixed on this CPI release, given the ECB’s recent concerns over falling Eurozone inflation and possible threat of deflation; this could have a large bearing on what the ECB decides to do at next week’s meeting.

German retail sales, French consumer spending and Spanish GDP all came in line with expectations this morning; the euro price has barely shifted with the key play being the CPI release at 10.00 BST.

USD

London closed with the greenback seeing uplift against a struggling euro, however it again traded down against sterling.

Spotlight again swings to the Fed today with traders expecting the Fed to continue tapering at another clip of $10B. After horrific weather and a slew of poor data, the US has recently turned a corner with the economy looking increasingly strong. It is also expected that this meeting will shed some clarity on the timescale for an eventual end of US QE. The market expects QE to be fully wound up by the end of this year and this is thought to be confirmed today. Little more is expected to be revealed from the meeting and overall it will probably be a quiet one with ensuing market movement minimal. However Fed meetings can go either way, with the focus as much on the tone and language used, as the result.

Elsewhere GDP and ADP numbers are set for release with the street bullish on both readings. Solid ADP and GDP should set the scene for an impressive Non-Farm Payroll.

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Written by Tom Tong

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