GDP Revision Gives Sterling A Boost

28 September, 2012

Simon Eastman

Yesterday the markets opened waiting for the final Q2 GDP figure from the UK. Come 9.30am and the figure was release showing GDP revised up at -0.4% for Q2, better than the expected -0.5% but obviously still in contraction so gains were limited. Against the single currency we gained half a cent reaching a three week high with sterling also buoyed by talk of EU farm subsidies which come once a year and are due by the end of September, giving an influx of €3.5 Billion. Sterling rose by a half cent against the USD too, although not managing to broach the 4 month high we saw a week ago.

The Euro then became the focus as we awaited the budget from Spain due in the afternoon and whether the government would seek a bailout. The ECB stipulate that Spain must ask for help as they will need to agree to austerity measures, as Greece did, in order to receive the bailout to reduce the countries borrowing costs. As the budget news was revealed the Euro made some decent gains against the dollar, moving up 60 points, but struggled to make any significant gain against the Pound.

The key points for the Spanish 2013 budget were cuts to ministerial spending, public sector pay freeze, higher VAT and a tax on lottery wins. The only rise in spending would be on pensions, although using a €3 billion Euro reserve to fund this and spending on student scholarships. The government also announced 43 new laws to help reform the economy. Will it be enough though is the question on traders lips while they await stress test results released later today on Spanish banks.

In other news, Castile La Mancha became the fifth of Spain’s 17 regional governments to say that it will draw on the Regional Liquidity fund set up by Madrid, requesting €848 million from the €18 billion available. They join Valencia, Murcia and Catalonia, who have collectively requested €3 billion and Andalucía who have as yet not specified the amount.

Over in Greece, finance minister Stournaras announced that a deal had been made with lenders on the austerity measures they would need to implement in order to secure the next tranche of bailout funds adding to the slight optimism surrounding the Eurozone crisis.

The Euro is in the balance it seems, positive noises are coming from the relevant places so be wary if you have Euros to buy that any further positive steps could well push the Euro up against the Pound to the rates we saw earlier in the month. It’s the last trading day of September so we could, as often is the case, see profit taking and closing down of positions held by traders which can add to the volatility of the markets so stay in touch with your broker here at Currency Index if you have any trade coming up, we could see an opportune moment for buying or the need for some damage limitation should the Spanish bank news later add to the Euro rally.

Finally, the Spanish budget not only helped the Euro make some gains but also buoyed investor sentiment adding to their risk appetite. We saw some significant gains by the commodity based currencies in later afternoon trade. For those sending money to Australia, Canada or New Zealand would have seen your British Pound buy you one whole cent less of each by the end of the day. Further positive Eurozone news today could push them down further so do get in touch if you have an upcoming requirement.