Will UK GDP data arrest fears of an economic slowdown?
UK economic data was weaker than expected with BBA mortgage approvals declining to around 44,500 from 46,600 the previous month which could suggest some cooling in the housing sector. There was also a weakening in the latest CBI industrial survey with the orders component flagging; the quarterly data registered the biggest decline for three years as export markets remain under pressure.
There could be further anxieties surrounding the industrial sector with a possibility that there was a reduction for the third quarter as a whole. Today, the UK will release its GDP data and market participants are still expecting growth of 0.6%. Anything less than this could reintroduce fears over a lack of economic balance and the possibility of an overall slowdown which could further cause major difficulties for the Bank of England in the setting of its monetary policy.
Data from the US disappointed yesterday, quite considerably, especially when considering the strength of relatively similar data on last week. This left the Greenback trending slightly lower for the day versus its peers. September’s New Home Sales contracted significantly with a result of -11.5%, a country mile greater than the market consensus of -0.6%. Manufacturing data released via the Dallas Federal Reserve also showed a contraction for October, with the figures published reaching an abysmal -12.7.
It is believed that the negative data is temporary and doesn’t provide many reasons for Dollar bulls to panic. When considering the currency market, the overall picture remains much the same with the US the frontrunners in terms of economic performance, and general market sentiment still favours the Greenback.
We are likely to see further volatility today where GBP/USD is concerned as we await key GDP figures from the UK along with Durable Goods Orders and Consumer Sentiment figures from the States. Many analysts are forecasting that the releases are likely to favour the Dollar bulls, re-testing a key level of support which has remained stubborn whilst tier one releases have been sparse.
The Euro gained a little respite against the Dollar during trading yesterday following the disappointing USD data. The Institute for Economic Research illustrated that Germany’s IFO business climate also beat estimates of 107.8, but still fell to 108.2 in October from 108.5 the month prior. The results indicate a resilience in the German economy as it seems relatively unfazed by the VW scandal as the domestic economy continues to remain strong. However, many technical traders are indicating that there is still room for a further decline for the single currency as we head towards the end of year and anticipate just how quantitative easing will be extended.
No notable data out for Euroland today, so most price action will be dependant on US and UK releases.