Pound falls further against EUR and USD
Quarter-over-quarter UK GDP slid 0.3% in Q4 2013, compared with 0.9% growth in the previous quarter, according to preliminary data released today by National Statistics. Market consensus pointed to less decline of 0.1%. This is subject to revision but it has already weighed heavily on GBP. Central bank governor, Mervyn King expects no more than a “gentle recovery” this year, while the International Monetary Fund this week cut its 2013 forecast for British growth and called on the government to slow the pace of budget cuts.
Meanwhile, business activity rebounded in Germany at the start of 2013 but plunged in France and other parts of the euro zone, highlighting Europe’s deepening economic divide as policy makers struggle to resolve the three-year-old debt crisis in Southern Europe. The figures, from a closely watched survey of purchasing executives, suggest Germany is the only major economy in the euro zone to benefit from the recent improvement in financial markets, which makes it easier for households and businesses to borrow and spend. In France, Spain and Italy, rising unemployment and uncertainty over the direction of economic policy have restrained growth despite reduced government borrowing costs and rising equity markets. The increase in the value of the euro could act as an additional brake on activity by making the countries’ products more expensive in global markets.
Whilst there seems to pressure on all currencies to weaken to encourage exports it seems to be GBP that is winning this race – if you have EUR or USD to sell back to GBP then the current prices represent excellent value compared with the last 12 months. GBP is actually at it’s weakest versus EUR since December 2011.
On the FX Markets, UK GDP has disappointed expectations at -0.3/-0.1% QoQ and 0.0/0.2% YoY, causing GBP/USD to collapse close to 75 pips. The pair had made a morning high at 1.5821, meeting resistance at the hourly 55 MA before the key numbers were announced, but plunged to post a low at 1.5746 just above daily classic S1 support at 1.5745. Spot has since bounced slightly and is currently trading at 1.5763. Elsewhere, German IFO data came in better than expected.The EUR/USD upside during European time has brought the price up to 1.3450 ahead of the ECB announcement regarding the LTRO repayments starting in Jan-30. The market had breached above the 1.3400 psychological level ahead of the European session.
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