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August 2016

Sterling recovers ahead of UK GDP data

Published: Thursday 25 August 2016

  • Sterling recovers ahead of UK GDP data
  • Janet Yellen and US GDP dominate USD thinking
  • UK Public Holiday on Monday may breed volatility

Our hearts go out to the poor earthquake affected villagers of central Italy, for whom the death toll keeps rising. The scenes are reminiscent of a war zone, with formerly beautiful villages reduced to ugly piles of rubble interspersed with rescuers doing their utmost to find any sign of survival. Nature can be awesome for both good and bad reasons but is certainly without compassion or discrimination when it moves the earth’s tectonic plates. 
 
In a sure sign that investors are becoming less risk averse, the price of gold has fallen to a one-month low. That comes ahead of, what is considered to be a very important speech by Federal Reserve Chair, Janet Yellen later today. Her address to the Policy Symposium at Jackson Hole is likely to reiterate previous comments that US interest rates are likely to be hiked before the year end but there is a lot of debate over whether the Fed is going to be confident enough in the US and global recovery to make that move. Either way, the US Dollar will be affected and it will also react to the second estimate of US economic growth, due for release at 13:30 GMT.
 
The UK version of the GDP growth data, second release is due at 09:30 GMT and there is a suggestion this morning that this could produce a small uptick in the data. Sterling; which has gained a little in the past week, could well end the week on a high if that proves to be true. In fact, if the year on year figure only meets the 2.2% growth forecast, that will be a positive story but we will have to see the Q3 data to see the after-effects of the Brexit vote. To be fair though, recent UK data has been rather more upbeat than most expected, so that might also impress.
 
That is about all there is to report today. It is, as I suspect you know, the last day before a long bank holiday weekend in the UK, so Monday will be devoid of UK activity and that take 40% out of the foreign exchange market. Therefore, there is scope for more volatility in the thin market conditions. This is a great opportunity for those who like to use automated orders to capture attractive ‘above market’ rates. Call us if you would like to see how that might work for you.
 
Have a great weekend everyone. 
 

Afterlife

 
Edna is distraught when her 80-year-old husband passes away. A friend suggests she consult a medium to see if she can speak to Bert in the afterlife.
 
A séance is arranged and Edna sits down opposite the spiritualist. She connects to the spirit world and Edna hears Bert’s voice. “Is that you Edna?”
 
“Hello darling”, she says. “How are things there?”
 
“Pretty good,” says Bert. “It’s a lively place.”
 
“What sort of things do you get up to?” asks Edna
 
“Well I swim first thing in the morning, then I have something to eat, then I will swim a little more, make love to as many women as I can find and then eat some more and swim and then I settle down for the night.”
 
Edna’s eyes widen. “Well, you’ve changed. You were never that vigorous when you were here. You didn’t like swimming, I always had trouble getting you to eat anything very much and you were always too tired for….well….you know what.”
 
“That’s true,” says Bert, “but I wasn’t a duck then.” 
 

Today's Major Economic Releases 

 
Market BST Data/Event Previous Expected
ALL All Day Jackson Hole Symposium    
EUR 09:00 EU: M3 money supply y/y 5.0% 5.0%
GBP 09:30 UK: Second estimate GDP q/q 0.6% 0.6%
GBP 09:30 UK: Prelim business investment q/q -0.6% -0.9%
USD 13:30 US:Prelim GDP q/q 1.2% 1.1%
USD 13:30 US: Goods trade balance -63.3b -62.3b
USD 15:00 Fed chair Yellen speaks    
USD 15:00 US: Revised UoM consumer sentiment 90.4 90.6

FX Research by David Johnson

Daily Currency Analysis with Charlie Horsley

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