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GBP falls on weaker than expected Q4 2010 GDP

GBP falls on weaker than expected Q4 2010 GDP

Initially coming under pressure versus the dollar yesterday, the euro spiked higher before the close of the day’s trading, climbing back to near two month highs overnight against the Dollar. Higher eurozone interest rates (on the back of relatively hawkish comments from the ECB’s head Trichet as well as upbeat eurozone data) helped push the single currency higher.

There is also some optimism in the marketplace that European policymakers will work towards solutions to expand the scope of the European Financial Stability Facility (EFSF) in order to find a long term resolution to the regions debt problems.

Sterling faced it’s first A-list data release of the new year, with Q4 2010 GDP figures released this morning. Markets were anticipating a slowing to 0.4% in the rate of recovery, down from 0.7% in Q3 and 1.1% in the previous quarter. The reasult was actually a massively dissapointing -0.5%. This clear signal of an ‘easing’ in the rate of economic growth will weigh on sterling as it dampens talk of a near term rate hike. With the weather being terrible in December and monthly indicators for that month rather mixed (declines in retail sales on the month and a dip below 50 in the service sector PMI).

Indeed, Sterling had a mixed day yesterday, down against the Euro under some selling pressure on talk that expectations of rate hikes may be over done, yet finishing positively against the Dollar over the US session as infamous MPC Hawk Andrew Sentance spoke at a night time event in the UK. As the only MPC member to have voted in favour of tighter monetary policy last year, his comments on inflation and criticism of a lack of response by the Bank of England are unsurprising, continuing to believe that it is a mistake of the BoE to label global price factors as short term.

The Dollar has been sold amidst a surge in risk appetite, with many company earnings releases this week expected to finish positively. The Dow Jones Industrial Average is at its highest levels since June 2008, and, against the Dollar, sharp rallies for the Euro and Aussie Dollar also indicates less concern about the troubles previously weighing on this currencies.

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