This morning’s revised 3rd quarter UK GDP figures have come in to confirm the original rate of growth at 0.8 percent. Broad market movements are still being dominated by safe-haven flows – namely the uncertainty that the Irish situation has given the Eurozone, and the problems in Korea, causing investors to strengthen the Dollar as they take funds away from the troubled Euro. The US Dollar yesterday experienced its biggest one day rise since the 19th October as European leaders spoke out about the worrying times ahead for the single currency.
Pound Sterling – UK Markets
The Pound has risen against the Euro since yesterday but is sitting lower against the US Dollar which is benefiting from safe haven flows. This morning’s revised 3rd quarter GDP figures came in as expected still showing quarter on quarter growth of 0.8 percent.
Any downwards revision may have had a negative impact on Sterling but the 0.8 percent growth figure has remained in line with expectations. There was some weaker more detailed information, particularly that the area of household spending in particular showed a drop from 0.7 percent to 0.3 percent reflecting concerns on Government spending cuts.
US Dollar – US Markets
The Dollar closed the day higher against the Euro at $1.3496, gaining 1.1%, as uncertainty continues about the Irish debt crisis ahead of publication of governmental austerity measures later today.
The US economic growth quarter on quarter figure for Q3 has been revised upwards from 1.7 percent to 2.5 percent, beating analyst’s expectations. Despite the good news, the Federal Reserve has downgraded its growth forecast for 2011 and expects inflation to fall and unemployment to trend upwards over the course of the year. The FOMC minutes also revealed conflicts regarding the bond buying programme.
This hasn’t dampened the currency though as it’s use as a safe haven remains prevalent in the wake of the Irish and wider European debt issue, as well as tensions between North and South Korea.
Euro – European Markets
Concern regarding the economic – and now political – situation in Ireland is still dominating the currency markets generally and pushing the Euro lower with growing concern that more Eurozone countries will be next on the list for bailouts with focus on Portugal.
All eyes are on Dublin this morning as the government is set to reveal the 4 year austerity measures which are aimed at slashing the deficit by €15 billion, roughly 11% of the nation’s GDP. Political instability and persistent concerns about Irish sovereign debt have devalued the Euro and sent stock markets lower around the world. Ratings Agency Standard and Poor’s has downgraded Ireland’s long-term sovereign debt rating from AA- to A.
Other Currencies – Highlights
Alexandre Tombini is expected to replace Henrique Meirelles as head of Brazil’s central bank. The move, which had been expected, is seen as paving the way to an interest rate cut aimed at curbing inflation which is running at 5.5%.
The target inflation figure for Brazil is 4.5%. The appointment of the new head from within the bank’s own ranks is thought likely to provide the markets with reassurance that the newly elected president, Dilma Rousseff, will not press as strongly for a looser monetary policy as some observers had feared.
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Sterling Rises on Hopes of EU Softening Tone on Backstop