Fallen Pound Following Last Week’s GDP Slump

The Pound is starting the week at the 1.16s against the Euro – lower than last Monday when we came off the starting blocks at 1.17 but the Pound has actually regained some ground over the weekend from lower falls to 1.154 on Friday and 1.153 last Wednesday when we saw decidedly low GDP figures knock the Pound down.

This kind of volatility is becoming ever more normal of late as uncertainty over how well various economic recoveries are actually progressing is called in to question. Whilst there had been murmurings that UK GDP for the last quarter of 2010 may come in lower than forecast due to bad weather, nothing could have prepared the UK markets for the quarterly figure released by the Bank of England on Wednesday last week. The expectation for positive growth at 0.5 percent actually came in at -0.5 percent showing a slowing economy. Sterling took an instant slide downwards in reaction and the impact of this is likely to ensure that the currency is fragile for some time to come until stronger data comes in and shores up confidence. The fact that the monthly Bank of England minutes last week also indicated that an interest rate rise has been ear marked for August (when some had been getting excited that a rate rise may come as early as May or June) has also had a dampening effect.

Events to watch this week will be Wednesday’s PMI Construction data in the UK – markets will be hoping this may indicate whether or not the GDP figure was accurate or an under-estimation as it will reveal how construction fared in December and if the weather had the same significant effect.

US payrolls on Friday may have an impact on the American currency depending on whether these come in on target and continue last week’s good run. Broader market themes however are casting their influence above and beyond some of the individual data releases as the political uncertainty stemming from the Egyptian protests is pushing up safer currencies with riskier currencies such as the Euro becoming weaker over the weekend. ‘Safe’ currencies such as the Swiss Franc, Japanese Yen and US Dollar have pushed up in response to the situation in Egypt. Should protests continue throughout this week then this trend may dominate markets this week.

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