UK economy looks set to avoid recession

Britain’s Office for National Statistics published the August monthly economic growth figure this morning. Monthly growth of 0.2% doesn’t sound scintillating but it was better than the 0.6% contraction we saw in July. This data is quite deceptive because it bounces around like a fiddler’s elbow on a monthly basis and traders tend to favour the quarterly and annual data as a guide to forecasting. Also, these monthly figures can be pushed around by rainy weather, strikes, an extra bank holiday etc etc, and as it is short-term, the impact is more… well…impactful. Nonetheless, this data does help to paint a picture of an economy which has enough resilience to avoid a recession, in contrast to Germany, for example, which we reported on yesterday. That has helped sterling to make some small-scale gains in early trading. The GBP/USD rate is a little higher at $1.2318 and the GBP/EUR rate is pushing up to €1.16 but not quite breaking through. Sterling has also made small gains against the Australasian dollar and the Canadian dollar amongst others. We don’t have any other UK data today but the US inflation data, due this afternoon, and the initial jobless claims will have an impact on the USD, the pound and the euro.

USD tackles Fed caution, inflation and jobless claims

The GBPUSD rate turned south in mid-July and tumbled all the way through to the beginning of October but we have seen a nearly three cent recovery in the last 10 days or so. That continued overnight following the release of the minutes from the last Federal Reserve rate setting meeting. The overall tone of the meeting was more cautious than in recent months and the markets are expecting slightly higher unemployment claims data this afternoon accompanied by a small downward tick in the annual inflation rate. If those forecasts for this afternoon’s data prove to be accurate, there is every reason to suspect the GBP/USD exchange rate will make further gains above its current level of $1.2310 and we ought to see a corresponding rise in the EUR/USD rate, which starts today at $1.0625.