Sterling Falls after Weak GDP Data
Sterling dipped below the $1.30 mark, following the release of the UK’s GDP data by the Office for National Statistics (ONS). The ONS data showed that the British economy grew by 0.2% in the first three months of the year. Household disposable income, adjusted for inflation, fell for the third consecutive quarter, which is the worst result in almost 40 years.
The US Dollar strengthened on news that the country’s GDP increased in the first quarter of 2017 by 1.4%, more than the expected 1.2%. Consumer spending, according to analysts, seems to have fuelled the US’ economy expansion. In Europe, Eurostat published the Eurozone inflation figures for June, which were better than anticipated but the Euro remained unaffected by the positive news.
Pound Sterling – UK Markets
Today, Sterling dipped against the US Dollar with the exchange rate set at $1.29. On the contrary, the British Pound strengthened against the Euro, trading at €1.13.
Data published by the ONS showed that the British economy expanded, in line with forecasts, during the first quarter of the year by 0.2%, much lower than the 0.7% growth that had been reported in the previous quarter. On an annualised basis, data showed that the UK economy expanded by 2%. Darren Morgan, who is responsible for GDP figures at the ONS, commented that growth was driven by business services and construction, while the saving ratio fell again to a record low as a result of higher tax payments.
A survey, published by the Gfk market research firm, indicated that British consumers have suffered a sharp loss of confidence because of the rising inflation in the UK and the weak wage growth. Joe Staton, head of the market dynamics department at Gfk, noted that “the twin pressures of higher prices and sluggish wage growth are squeezing household finances, and adding to widespread fears of a Brexit-induced economic slowdown.”
US Dollar – US Markets
The US Dollar managed to recover some of the previous days’ losses against the Euro, gaining 0.2% in value and trading at €0.87. The US currency recovered on news that the US economy slowed less sharply in the first quarter of the year than initially estimated. The US’ GDP expanded by 1.4%, better than the 1.2% expected, according to data from the US Department of Commerce.
A jump in consumer spending was the reason that the US economy performed better than expected, giving a more encouraging outlook for the rest of the year. Consumer spending accounts for more than two-thirds of the US economic activity. For the first quarter of 2017, consumer spending rose by 1.1%, which is the weakest reading since 2013, but far better than the 0.6% that analysts were expecting.
A White House economic adviser said that President Trump will demand action by the G20 leaders to reduce excess capacity in the global steel market, during a G20 summit next week in Germany. Data coming from a US national security review of the US steel industry may lead to broadening US quotas or tariffs on imported steel. The president is allowed to restrict imports of goods, deemed critical for national defence, thanks to a Cold war-era trade law.
Euro – European Markets
The Euro dropped against the US Dollar with the exchange rate hovering around the $1.14 mark. The US Dollar’s strengthening put a strain in the Euro’s course upwards.
Eurostat published its inflation figures for the month of June, which showed that consumer prices are expected to rise at an annualised 1.3%, a bit lower than May’s 1.4%, but better than expected. Consumer prices, with the exception of food and energy costs, rose by 1.1% over the last year, surpassing the consensus.
George Saravelos, a strategist at Deutsche Bank, suggested that Mario Draghi’s speech, during an ECB forum in Portugal, signals a major shift in the ECB’s stance on monetary policy. Saravelos said that the ECB doesn’t worry anymore for low inflation in the Eurozone, but it considers the situation temporary: “The language shift is critical because it sets free the Euro, disinflationary strength in the currency may now matter less for the ECB. The Euro can now strengthen despite, not because of higher bund yields. In fact, the more the Euro appreciates, the more ECB tightening will be slowed.”
Other Currencies – Highlights
Sterling dipped against the Australian Dollar, trading at 1.68 AUD. A report by HSBC analysts suggests that the Reserve Bank of Australia (RBA) will raise its interest rates, during the first months of 2018. The report says that a tightening labour market and Australia’s rising capacity utilisation will result to wage growth, which will make the underlying inflation rise. “Once the RBA sees clear evidence of a lift in wage growth, we expect that a hike will not be too far away,” HSBC comments.
The Pound slumped against the New Zealand Dollar, with all yesterday’s gains erased and the exchange rate set at 1.77 NZD. The Bank of New Zealand’s (BNZ) Head of Research, Stephen Toplis, said that the bank is pushing back their expectation of a first rate hike by the Reserve Bank of New Zealand (RBNZ) to mid-2018. “There remains huge uncertainty around the timing of the move and we are certainly not ruling out a February rate hike. Our view on where the rate hike cycle begins is not that different to the market’s, with June 2018 currently priced in for the first move,” suggested Toplis.