Sterling boosted by economic growth, but it won’t be enough to sway Carney and co.
Sterling showed some positivity yesterday; the UK economy grew by 0.5% in the three months to the end of December, pushing the annual growth rate for 2015 to 2.2%. This means that despite recent negative sentiment, the UK is still one of the fastest growing developed nations. The reading is also in line with the IMF forecast which said that the UK’s economy would grow by 2.2% in 2015, and for the next two years.
Although Bank of England (BoE) will be happy to see that growth rebounded in Q4, it does not necessarily alter their assessment of the economy. Very low inflation, subdued wage inflation and financial turmoil are reasons enough for rate hikes to be sidelined for now.
Poor durable goods order from the US yesterday also allowed the Pound to regain further ground against the Dollar. GBPUSD opens the day comfortably in 1.43 range. Q4 US GDP out today could be of additional detriment to the Greenback as there is a market expectation of 0.8% annualised expansion, a downtick from the previous 2%. However, volatility may be relatively muted considering the already significant downgrade of Fed rate hike bets in recent weeks.
Spain’s National Statistics Institute reported that the number of unemployed Spaniards fell by 12.4% to 4.78 million last year, thanks to a strengthening economy. The economic recovery pushed the number of unemployed people down by 678,200 for the whole year. Although the headline rate remains above 20% of the eligible populace, the figure had been as high as 27% in mid 2013.
In Japan, after ten years consideration and a week after the Bank of Japan’s governor testified that there was to be no further economic stimulus, the deposit rate was cut to -0.1%. Following Mr Draghi’s example in Europe, the aim is to deter banks from saving and prompt them to lend in another attempt to counter the continuing economic slump in the world’s third largest economy. The announcement caused the stock market to jump while the Yen fell sharply against major currencies.
Data to watch: 7am German Retail Sales (Dec) YoY & MoM. 10am Eur Consumer Price Index (Jan) YoY & Core CPI MoM. 1.30pm US GDP Q4 & Annualised, Personal Consumption Expenditures. 3.30pm Chicago PMI (Jan), Baker Hughes Oil Rig Count.