UK growth figures see GDP rise; USD declines after Bernanke speech
28/Apr/2011 • Currency Updates•
Sterling was boosted yesterday by UK GDP data showing that the UK economy had grown by 0.5% on a quarterly basis. This represented a 1.0% swing from last month’s number that showed that GDP had declined by the same amount. There was also further positive data in the form of UK BBA mortgage approvals coming in higher than expected at 31.7k against the expected figure of 30.6k. As a result trading throughout the day was bullish towards the pound seeing it rally against most major currencies.
Against the euro the pound gained 0.5% whilst smashing through recent 18 month highs against the dollar yesterday evening as the Federal Reserve held its target overnight borrowing interest rate at 0-0.25%. Sterling ended the US trading session over 1.3% (or 2 cents up on the day).
There is very little UK data due out today as Britain gears up for a long double Bank Holiday weekend due to the Royal Wedding and May day.
The euro started to look a little bit vulnerable against the pound yesterday as the GFK Consumer Climate index came in at 5.7, softer than the expected figure of 5.9. There was further negative data with month on month Industrial New Orders, expected to have grown by 1.3% only grew by 0.9%. As a result at the close of European trading the euro was down by 0.5%.
The euro also traded more or less flat against the dollar until the Federal Reserve’s rate decision and press conference. The Dovishness of Bernanke’s speech meant that the dollar declined rapidly with the euro gaining around 0.8% by the close of business in the States.
There are no major Eurozone economic data releases to focus on today.
The dollar was in decline against the pound throughout the day as a result of buoyant UK data, dropping an initial 1 percent at the close of UK business. In truth, sentiment towards the greenback had been weak for the last week or so off the back of Moody’s and Standard and Poor’s downgrading US credit ratings in response to Obama’s proposed reforms to Taxes and Unemployment benefits. Against the euro, the dollar was more or less flat at the close of European business. However, the dollar was about to decline off the back of an extremely dovish rate decision and press conference from the Fed and Ben Bernanke. The Federal Reserve held its target overnight borrowing interest rate at 0-0.25%.
Bernanke’s words in the press conference that followed implied that the Federal Reserve remained pre-occupied with monetary stimulus. This means that the Fed will more than likely keep their interest rates on hold as the rest of the G10 look likely to start a cycle of rate hikes in an effort to cap inflation. The market reaction to the decision and press conference was bearish to say the least with the dollar reaching the lowest levels against both the euro and the pound for over 18 months.
The main focus of the day will be on US Unemployment claims data and US GDP data due at 13:30. The market is expecting US Unemployment claims to have dropped to 392k from last month’s number of 403k. Meanwhile, advanced US GDP data is expected to show gross domestic product growing by 1.9% on a quarterly basis, with the Advanced quarterly GDP Price index expanding by 2.2%.