Sterling buoyed as UK growth accelerates in second quarter
29/Jul/2015 • Currency Updates•
Latest growth data out of the UK provided Sterling with a boost yesterday. The currency appreciated by 0.45% against the Dollar and by 0.4% versus the common currency.
In line with expectations, economic growth in the UK gathered pace in the second quarter of the year according to yesterday’s initial estimate. Gross domestic product expanded by 0.7% on the previous quarter, an acceleration on the 0.4% growth recorded in the first quarter of the year. On an annualised basis, the economy grew by 2.6%. This expansion was helped in part by a large jump in oil and gas production, with a surge in North Sea oil and gas production lifting overall industrial output by 1%, its largest increase since the back end of 2010. There were signs of a pick-up in investment, while the country’s dominant services industry also recorded solid levels of growth.
Encouragingly, the economy in Britain has now experienced positive expansion in all of the past ten quarters. Such impressive GDP figures provide further weight to our view that the Bank of England will begin hiking interest rates in February next year.
Traders in the UK this morning will have one eye on the Federal Reserve this evening, and another on data out in Britain this morning, namely net lending and mortgage approval figures at 9.30am from the ONS.
The Euro suffered losses against both its major G3 peers yesterday as traders continue to bet on interest rate hikes by the Bank of England and Federal Reserve. The currency depreciated by 0.1% against the Greenback.
Yesterday was another moderately subdued day in terms of economic announcements in the Eurozone. The only data release of any note came out of Italy with the latest consumer and business confidence index’s, both of which declined in the Eurozone’s third largest economy.
In other developments, the International Monetary Fund gave a stark warning on the Eurozone’s economic outlook. Lingering worries over Greece, high unemployment, and a banking sector still fighting to recover from the financial crisis, could weigh on the Euro-area according to the IMF, with the economy remaining susceptible to negative shocks due to low levels of growth and a lack of additional tools available to policymakers. It called for a “collective push” to increase the speed of reforms, or risk suffering from years of lost growth in the future.
There are a handful of second-tier data releases in the Eurozone this morning. Consumer confidence in Germany and France, before markets open in the UK, will be followed by Spanish retail sales at around 8am BST.
The Dollar rebounded somewhat before falling away in afternoon trading ahead of the Federal Reserve’s monetary policy statement today. The US Dollar index ended 0.1% lower.
From a data perspective, growth in the service sector of the US economy picked up speed in July. The latest flash PMI from Markit increased from 54.8 to 55.2, fuelled by new business and an increase in employment. This nudged the composite PMI index, which also includes manufacturing, slightly higher to 55.2 from 54.6. Elsewhere, the S&P/Case-Shiller home price index showed house prices increased by 4.9% in the year to May, while consumer confidence unexpectedly fell back sharply to an index of 90.0, from 99.8, its lowest level in almost a year.
This evening will see the announcement of the interest rate decision at 7pm from the Federal Reserve following its FOMC meeting. While we do not expect rates to be altered, or even necessarily a concrete commitment to a September lift-off, the accompanying statement is likely to reflect what most FOMC participants have publically stated of late; that higher rates are coming in 2015.
Rest of the world
The Malaysian authorities allowed its Ringgit to trade below 1998 levels, which led to an imposition of a Dollar peg and capital controls. The Russian Ruble hit a fresh four month low, the Brazilian Real weakened sharply to its lowest position against the Dollar in twelve years, while China’s Yuan held steady after the central bank fixed its midpoint at a two week high, amid the recent sharp fall in equity markets.