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The pound falls despite better data
Published: 26 Jul at 9 AM Tags: Pound Sterling, Euro Exchange Rate, Dollar Exchange Rate, Australian Dollar Exchange Rate, New Zealand Dollar Exchange Rate, Euro Crisis, UK, Economy, Inflation,
The pound fell against both the euro and the dollar yesterday despite the release of official data showing that economic growth in the UK in the three months to June was double that of the first quarter of the year. The data release from the Office of National Statistics (ONS) showed that UK Gross Domestic Growth (GDP) grew by 0.6% in the second quarter, exactly in line with consensus expectations.
This failed to support the pound as the markets took the data release to show that the figures had all been priced in. This together with the expectation that the Bank of England will take further action in August to propel the UK economy to ‘escape velocity’ from the recession put the pound to the sword.
New Bank of England Governor Mark Carney is likely to use the August inflation report to outline how he plans to use the policy of ‘forward guidance’ to convince both businesses and households that interest rates will stay low for some time to come, probably until beyond the next general election and thereby boost economic activity.
The data release from the ONS showed that all four main industrial groupings within the economy (agriculture, production, construction and services) grew during the second quarter of the year when compared with the same period of 2012, a feat not achieved since the third quarter of 2010.
Of particular note, data shows that the UK economy peaked in the first quarter of 2008 but from peak to trough the UK economy shrank by 7.2%.
The euro was also supported by a better than expected data release from Germany. The German IFO Business Climate Index increased from 105.9 in June to 106.2 in July.
This is the third month in a row the German IFO figure has risen.
Risk appetite is back to drive the stock and commodity markets up and this has also boosted the fortunes of the high yielding currencies like the Australian and New Zealand dollars.
Overnight in the US, noted Fed Watcher John Hilsenrath commented that the US central bank will in his opinion maintain the size of its quantitative Easing program at its next meeting in August despite some speculation to the contrary.
In China, the authorities ordered more than 1,400 companies in 19 industries to cut excess production capacity this year as it seeks to move towards a more sustainable growth model. The expectation is that the Chinese economy will grow at 7.5% in 2013.
This failed to support the pound as the markets took the data release to show that the figures had all been priced in. This together with the expectation that the Bank of England will take further action in August to propel the UK economy to ‘escape velocity’ from the recession put the pound to the sword.
New Bank of England Governor Mark Carney is likely to use the August inflation report to outline how he plans to use the policy of ‘forward guidance’ to convince both businesses and households that interest rates will stay low for some time to come, probably until beyond the next general election and thereby boost economic activity.
The data release from the ONS showed that all four main industrial groupings within the economy (agriculture, production, construction and services) grew during the second quarter of the year when compared with the same period of 2012, a feat not achieved since the third quarter of 2010.
Of particular note, data shows that the UK economy peaked in the first quarter of 2008 but from peak to trough the UK economy shrank by 7.2%.
The euro was also supported by a better than expected data release from Germany. The German IFO Business Climate Index increased from 105.9 in June to 106.2 in July.
This is the third month in a row the German IFO figure has risen.
Risk appetite is back to drive the stock and commodity markets up and this has also boosted the fortunes of the high yielding currencies like the Australian and New Zealand dollars.
Overnight in the US, noted Fed Watcher John Hilsenrath commented that the US central bank will in his opinion maintain the size of its quantitative Easing program at its next meeting in August despite some speculation to the contrary.
In China, the authorities ordered more than 1,400 companies in 19 industries to cut excess production capacity this year as it seeks to move towards a more sustainable growth model. The expectation is that the Chinese economy will grow at 7.5% in 2013.
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Source: moneytransfer.co.uk