UK GDP figures announced at 0.8% are stronger than expected and have already given weight to a previously frail Pound - 0.8% is lower than the second quarter figures but far more robust than the market as a whole expected. The immediate reaction was a strengthening in the Pound.
Pound Sterling – UK Markets
The government giveth and the government taketh away. Hot on the heels of a poorly received move to take child benefits away from wealthier families, the UK government has announced that it is considering a radical reform of the state pension system which would break the link between national insurance payment history and the rights to a full pension. Essentially, a full UK pension would be set to become a birthright if the new reform is adopted. The plan would simplify the complex pensions system, making some savings which could be passed on, but it is unlikely that the plan would be self-funding. UK retirement age will rise to 66 from 2020.
Although GDP figures were stronger than expected Sterling still faces considerable headwinds. Poor mortgage and retail sales in September, falling house prices, fiscal tightening coupled with shattered business and consumer confidence in the light of job and spending cuts to come will continue to threaten the Pound in the months ahead.
Sterling reversed some early losses against the Euro yesterday to close at €1.1204, a gain of 0.6% on the day however after this morning’s announcement we have seen a spike up towards €1.1370 Sterling is also higher against the US Dollar and at 07:20 GMT £1 would buy $1.5790.
US Dollar – US Markets
The Dollar has hit fresh 15 year lows against the Yen of ¥80.52, although it recovered slightly and is currently trading at ¥80.7450 at 07:26 GMT.
The weaker Dollar was responsible for rises in metals traded in London with base metals up by 2.5% on average. With the Federal Reserve openly musing about injecting fresh cash into the US economy through quantitative easing, the Greenback is likely to remain under pressure. The three week trend graph shows the underlying weakness of the US Dollar quite clearly.
Euro – European Markets
Euroland industrial orders bounced 5.3% in Aug to be up 24.4% yr. An 8% urge in capital goods orders and 5% for consumer goods plus lesser gains elsewhere shows that the European industrial sector is still benefiting from the developing world trade recovery and prior Euro depreciation. Of the major economies, Germany, Italy and Spain saw solid orders gains (reversing July falls) but France saw orders slip modestly after three monthly gains.
The Euro lost ground against the Dollar for most of the day yesterday, before staging a come-back. The current exchange rate sees €1 buying $1.3964 at 07:36 GMT.
Other Currencies – Highlights
The Swiss Franc is trading at €0.7343; losing 0.6% in the course of yesterday’s trading. The Pound closed yesterday at 1.5257 CHF.
The UK government has opened negotiations with Swiss authorities which would eventually lead to the Swiss levying a withholding tax on part of the interest earned on savings held in Swiss banks by British nationals. The tax would then be repatriated to the UK and could be worth several billion pounds per annum to the UK exchequer.
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