Strong Data Out of US and Eurozone
The US economy grew strongly at the end of last year. GDP grew by 3.2% in Q4, which together with 4.1% growth in Q3 makes the strongest half-year in a decade. Even though some elements of the data showed this growth would be unsustainable, the US dollar strengthened (perhaps some of this was a delayed reaction to the confirmed tapering from the previous evening). GBP/USD now sits just above. 1.6450.
In Europe, growth data continue to surprise to the upside. German unemployment fell more than expected in January and the monthly eurozone and Swedish confidence readings hit 2½ year highs. And perhaps the biggest news was that the Spanish economy grew 0.3% in Q4 13 vs Q3, at least as preliminary reading. This has kept GBP/EUR well within the 1.21’s after BoE Governor Mark Carney ‘talked the currency down’ last week.
Today’s Eurozone inflation data will be closely watched. Despite the above positive news, extremely low inflation and almost stagnant lending are making further stimulus or rate moves from the ECB a big possibility.
Mirroring the events with ZAR two days ago, NZD was slightly weaker even after the RBNZ governor repeated that he was likely to raise rates soon (we expect a 25bp hike in March – after this global economic crisis one can’t help but think that old school monetary policy just doesn’t work anymore).