Friday’s GDP figures in the US have thrown light over how the economic situation developed in the region between the first and second quarters of 2010. Whereas GDP for the first quarter now stands at 3.7 percent, this deteriorated down to 2.4 percent in the second quarter - the currency is bearing the brunt of this slow down as the news caused the Dollar to fall against nearly all other counterparts.
Pound Sterling – UK Markets
Sterling’s upwards momentum is still in full force with a mid-market rate of 1.58 against the US Dollar being hit over the weekend for the first time in five months. At 10.20am on Monday morning, the GBP/USD rate was 1.5794 and the rate against the single currency was also at a healthy level of GBP/EURO 1.2088.
HSBC, the largest bank in the UK and one that survived the crisis with no Government financial support, has revealed its profits in the first half of 2010 more than doubled its profits for the same period in 2009. Pre-tax profits were £ 7 billion.
Further optimistic news has come from the manufacturing sector. This area has outstripped the rest of the economy, with the industry trade body the EEF forecasting growth for this year at 3.8 percent in manufacturing compared to 1.1 percent for the economy as a whole.
US Dollar – US Markets
Friday’s crucial GDP figures have taken effect to cause the Dollar to fall against a basket of other currencies. The economy was revealed as slowing in the second quarter with GDP coming in at 2.4 percent which was less than forecast and well under the revised figure of 3.7 percent for the first quarter.
The news however was slightly mixed as business activity unexpectedly accelerated in July and consumer sentiment fell less than expected.
The main focus of markets however has been on the disappointing GDP figures and speculation over the possibility of stimulus measures to prevent deflation and increase unemployment.
Today’s PMI and construction spending figures will be closely watched giving the concerns about deflationary pressures.
Euro – European Markets
The single currency has been boosted by the negative outlook in the US alongside the positive signals coming out of Europe, in particular from German businesses. Gains on the Dollar since Friday have therefore been strong.
European news is still a mixed bag however and the Euro is dropping against Sterling so far this morning. The hedge fund FX Concepts LLC which manages $8 billion in assets have spoken out to recommend starting to sell the single currency on expectation of a drop in growth as austerity measures take effect.
Other Currencies – Highlights
The Japanese Yen which experienced some strong gains last week has now fallen against nearly all of its major counterparts as reports showing that the Asian recovery is gaining momentum caused investors to take money out of the safe haven currencies such as the Yen and instead target riskier assets.
Sterling Rises on Hopes of EU Softening Tone on Backstop