UK Economy Third Quarter Performance
The first reading of UK’s performance for the third quarter, released just now, revealed that the domestic economy expanded at a weaker than expected pace, stumped by China’s downturn, a construction slump and ailing manufacturers. However, growth in the services sector which makes up more than three quarters of the UK economy was robust in third quarter, led by business services and finance.
Across the Atlantic, investor focus will be on core durable goods orders, services PMI data and the latest CB consumer confidence reading. However, currency traders will be hesitant to make any major moves ahead of the two day meeting of the FOMC that begins today. Meanwhile, it is a relatively data-quiet calendar day in Europe.
Pound Sterling – UK Markets
The Pound has slipped lower against the majors this morning after the GDP data that was published just now showed that growth in the UK economy slowed in the third quarter due to weaker construction and contraction in manufacturing output. The initial estimate of UK GDP which came below market estimates indicated that the economy expanded by 0.5% in the July – September quarter, falling back from a strong 0.7% growth in Q2. Markets had anticipated subdued growth for the last quarter in the wake of recent poor data and surveys of activity from the UK's construction and manufacturing sectors in particular. The dismal GDP report also suggests that slowdown in emerging markets have dimmed growth outlook for the UK economy.
Conditions in the UK manufacturing sector have continued to deteriorate at the onset of the fourth quarter, as suggested by October’s CBI industrial trends survey yesterday. Domestic factory orders suffered its biggest fall in three years for the three months to October, as manufacturers struggled with weak export demand and also faced pressure back home.
US Dollar – US Markets
The US Dollar is looking for direction against the Euro this morning, as investors tread cautiously ahead of the FOMC’s two day October monetary policy meeting which begins later today with the much awaited outcome due to be published tomorrow. Although, the Fed has hinted that it would refrain from raising its short term interest rates in today’s meeting, the Fed Chairwoman Janet Yellen in her recent discussions did not completely rule out the possibility of a rate rise and reiterated that the Fed’s decision would be data driven.
Before the crucial FOMC meeting commences today, currency traders will eye a string of US economic data releases, amongst which US durable goods orders and consumer confidence will draw significant market attention. Markets anticipate that today’s update on headline orders will show some signs of revival for September, given last week’s flash PMI data suggesting demand has firmed in the nation and which could offset a drop in the civilian aircraft orders. Also, the consumer confidence index for October is expected to remain at somewhat similar level as witnessed in the previous month.
Euro – European Markets
The Euro is trading on a stronger footing against the Pound in the second session of this week, with the currency pair currently trading above the 0.72 mark. Though the European docket is void of notable domestic macroeconomic indicators, the early estimate of GDP data for the UK economy which was released just now brought in bouts of volatility from Sterling. The dismal UK GDP report has helped the shared currency to extend its gains against the Pound this morning. On the other hand, the Euro is currently trading in a close range against the US Dollar, with traders awaiting crucial FOMC rate decision and statement which will be published tomorrow. Also, some key US economic releases such as durable goods orders and consumer morale report due today could determine direction in the Euro – US Dollar currency pair.
The Euro traded moderately higher against the US Dollar yesterday, as investors welcomed better-than-expected reading of the German Ifo barometer this month. Also, the Bundesbank, in its latest monthly report released yesterday, indicated that the underlying growth trend of the German economy remains very robust.
Other Currencies – Highlights
The Swiss Franc trimmed some of its losses against the US Dollar earlier today after data showed that Switzerland’s consumption modestly improved last month buoyed by an increase in new vehicle registrations. The surge in registrations could be attributed to lower prices for imports such as automobiles in Swiss Francs and also purchases got a boost by low borrowing rates. However, the Swiss retail sector remains sluggish, as currency fluctuations have little impact on prices where production costs are incurred mostly in Switzerland. Moving ahead, trading in the US Dollar – Swiss Franc pair could be influenced by a slew of notable economic data releases in the US and the FOMC October meeting which will commence later in the day.
The Swiss Franc was ditched across the board yesterday in response to comments by the SNB’s Vice President that the home currency still remains overvalued and the central bank would analyse the impact of ECB’s stimulus measures on the Swiss economy, hinting at the likelihood of further intervention by the SNB.