Today gives currency investors the chance to directly compare the UK and US economies – UK GDP figures have come in above expectations this morning and US GDP figures are due to be released later. The anticipated decline in US GDP will shape the risk-averse choices of investors playing out to affect other currencies such as the Euro and Yen today and over next week.
Sterling was trading at the mid-market rate of 1.5504 against the US Dollar and 1.2195 against the Euro at 9.30am this morning.
Pound Sterling – UK Markets
UK second quarter GDP figures this morning have come in above expectations. Quarter on quarter GDP has risen to 1.2 percent from 1.1 percent beating expectations of 1.1.percent. Year on year GDP shows a similar trend coming in at 1.7 percent which is up from – 0.2 percent last year and beating expectations at 1.6 percent.
This follows other positive news yesterday as the CBI posted surprise sales for August showing the largest increase in retail sales over three years and the fastest increase in shop prices since 1992.
How much this news will support the Pound will be seen after US GDP figures come in later today and how markets play out next week. It’s not all rosy as there is still much concern about the UK economy with news reports today focusing on the amount of Government employees set to lose their jobs in line with budget cuts expected to cause much further damage to the housing sector.
US Dollar – US Markets
The Dollar dropped against the Pound and the Euro yesterday. There was better than expected news on US joblessness yesterday with the amount of jobless claims dropping to 473, 000 beating expectations of a smaller decline. This actually caused the Dollar to drop as investors bought into slightly riskier currencies on this sign that the economy was more robust than thought.
Later today sees the release of GDP figures in the US. The second quarter GDP figures are expected to be revised down from 2.4 percent to 1.4 percent however some estimates have been as low as 1 percent.
Federal Reserve chairman Ben Bernanke is also preparing to put forward his view on the US economy at Jackson Hole today. Investors will be interested to see whether he discusses stimulus and easing measures given the ongoing poor US data of recent times and will inform their positions on the currency markets.
Euro – European Markets
The Euro begun loosing yesterday’s gains on the US Dollar and is showing volatility against the Pound.
Euro stocks and shares have been hit as investors wait to see later today the extent to which the US economy has slowed thereby determining their appetite for risky investments. These have continued to stay low following this morning’s positive UK GDP figures.
Other Currencies – Highlights
As the US Dollar fell, the Canadian Dollar has strengthened for a second day as commodities have gained in value such as copper and crude oil.
Speculation over the Japanese Yen is reaching new heights as the US Dollar continues to weaken and the Yen continues to rise causing damage to Japanese exports. The degree of international support for any intervention by the Bank of Japan to weaken the currency remains to be seen.
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