Positive UK GDP Expected

25 October, 2012

The markets are expecting important data for sterling to emerge this morning, as the UK GDP figures are released. Expectations are positive, and markets expect the figures to show 0.7% growth, which will officially bring the UK out of the double-dip recession. Any major gains, however, are likely to be muted, due to analysts pointing out that much of the growth can be chalked up to the “Olympic Effect”, saying that Olympic ticket sales alone would add about 0.2% to GDP. Mervyn King has also said that, despite the expected growth, total GDP growth would still likely be below pre-recession levels. Nonetheless, being officially out of double-dip recession is an important step for the UK economy, and will likely cause investors to back sterling, most likely giving it a rise in value.

In contrast to positive sterling data expected today, the Eurozone suffered seemingly negative data. Most notably, German manufacturing output was significantly down, adding to more slight concerns that the most powerful economy in Europe is suffering some weakness. There has been some slight confusion in Greece, after finance minister Yiannis Stournaras announced that the country had been given a further 2 years to meet the spending cuts required for a bailout. However, when asked about this, ECB president Mario Draghi said he was unaware that an extension had been agreed. An apparant lack of agreement and communication over one of Europe’s weakest economies is likely to worry investors, as well as the fact that, unless a bailout is received, Greece is likely to run out of money at the end of the November. Eurozone worries, coupled with the positive data expected for the UK, caused sterling exchange rates to reach a week-long high against the Euro yesterday.

In the United States, the Federal Reserve announced that they believe the US economy is growing, albeit slowly, and aggressive steps are needed in order to fuel further growth. There were few shocks in the announcement, and currency rates could have remained unchanged, but the dollar did make gains against the Euro based on poor EU economic data. Sterling is trying desperately to pull away from a 6 week low against the dollar, but we may have to wait for positive GDP data this morning in order to see that.

The GDP figures this morning are likely to affect exchange rates one way or another, so if you have any currency requirements upcoming, please give Currency Index a call so we can assisst you in getting the best exchange rates.