Pound Weakened by Lower GDP
The Pound was weakened this morning by the news that Britain’s annual growth rate has been revised down, as annual GDP slows to the lowest rates since 2013. Separately, Mark Carney, governor of the Bank of England (BoE), told BBC radio that UK interest rates might be rising “in the coming months if the economy continues on this track.” Carney said a gradual, limited interest rate increase can be anticipated “in the relative near-term,” which could be as soon as November, when the next Monetary Policy Committee meeting is scheduled.
The US Dollar was enjoying its best week of this year, but it fluctuated lower today as investors sought more assurance about the tax reforms that president Donald Trump proposed. His broad, sweeping reform plan lacks critical details and it may not achieve Congressional approval since it will increase the federal government’s budget deficit. Treasury Secretary Steven Mnuchin has argued that the plan will cut deficits with economic growth which will increase tax revenue.
Pound Sterling – UK Markets
Today, the Pound dipped against the US Dollar with the exchange rate set at $1.33. Sterling also edged lower against the Euro with the exchange rate set at €1.13.
The Office for National Statistics (ONS) released the UK’s GDP this morning, revealing that the economy has grown by less than was anticipated. In the second quarter of the year, it rose by just 1.5%, which is lower than the estimated increase of 1.7%. The ONS commented on the “notable slowdown in growth in the first half of 2017,” and added that the “often buoyant services sector was the only area to grow in the second quarter.”
London house prices have fallen for the first time since 2009, according to a new survey by the Nationwide building society. The drop by 0.6% is seen as a long overdue adjustment after being “overvalued for at least the last three years,” said the head of independent estate agents, Lee James Pendleton. Average prices across the UK increased by 2.0%, but homes in the East Midlands surged in value by 5.1% over the past year.
US Dollar – US Markets
The US Dollar dropped against the Euro with the exchange rate set at €0.85. The US Dollar Index (DXY) slipped, coming in at 92.98.
Stocks on Wall Street opened slightly lower as investors realised that Hurricanes Harvey and Irma will probably slow third quarter economic growth. The extreme weather events have already impacted on the labour market, as many businesses in affected areas have struggled to recover. Initial Jobless Claims rose by 272K, which was more than the 270K figure anticipated and higher than the previous number of 260K newly unemployed workers.
US data released yesterday was largely positive, with second quarter GDP coming in at a rate of 3.1%. This was better than the 3.0% growth that the Commerce Department had estimated and marked a 2-year high due to more consumer spending than had been expected. The US international trade deficit fell by $0.9 billion in August, bringing it down to $62.9 billion from July’s figure of $63.9. This was due to exported goods rising by $ 0.3 billion and imports falling by $0.6 billion from the previous month.
Euro – European Markets
The Euro has held onto recent gains against the US Dollar with the exchange rate remaining at €1.17. The Euro was supported by yesterday’s European Commission Consumers Confidence survey which showed that in September, confidence surged to the highest levels recorded in 16 years.
Eurozone data released today included a disappointing German Retail Sales figure for August. Sales were flat, remaining at 2.8%, compared to the previous year, but they had been expected to rise to 3.2%. August’s month-on-month sales were down by-0.4%, for a slight improvement from July’s downturn of -1.2%.
There was better news in German jobless claims which show that September’s unemployment rate fell to a record low. The jobless claims dropped by 23,000, shattering The Wall Street Journal’s expectation that they would fall by only 5,000. Germany’s jobless rate of 5.5% is the lowest level since the data was first recorded in January 1992.
Other Currencies – Highlights
The Pound lost a little strength against the Australian Dollar, but Sterling is still trading at 1.71 AUD. The Aussie is near six-week lows to the US Dollar at levels that haven’t been seen since mid-August, with the rate at 0.78 AUD.
After a strong performance since the start of the year, this recent weakness is blamed on the fall in commodity prices, especially in iron ore which is Australia’s largest export. The US Dollar’s strength is a factor in the decline of 16% this month in ore prices, which are priced in US Dollars. Decreased demand from China is likely to keep ore prices lower all winter, since Beijing is expected to curtail major construction to improve the city’s winter air quality levels.
The Pound edged down against the New Zealand Dollar, trading at 1.85 NZD. The Kiwi’s weakness is a result of the Reserve Bank of New Zealand (RBNZ) leaving the interest rate unchanged at 1.75%, in an effort to reduce the currency’s value to “help deliver more balanced growth.” The RBNZ suggested it may be downgrading economic growth projections due to increased political uncertainty after last weekend’s election result failed to give any single party a majority. RBNZ had projected GDP growth of 3.8% in August, however, it hasn’t come near that target. Growth in the first two quarters of 2017 was around 2.5% as the construction sector slumped due to rising costs and labour shortages.
Sterling dropped against the Swiss Franc today, exchanging at 1.30 CHF. Today’s release of Switzerland’s KOF Leading Indicator, which measures the current and near future health of the Swiss economy, surpassed forecasts. September’s figure of 105.8 was just slightly higher than the 105.5 which had been anticipated by analysts. Although this shows improvement over August’s figures of 104.1, the news didn’t strengthen the Swiss Franc, which is likely to remain weaker against the Euro and US Dollar.