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March 2016

Sterling to bounce on improved GDP data

Published: Thursday 31 March 2016

  • Sterling to bounce on improved GDP data
  • EU data mixed but GBPEUR stuck
  • US Dollar weaker on uncertain Fed
Wednesday was most notable for the decision by Tata to sell off its UK steel production. Finding a buyer would be tough unless it is for a peppercorn price but the day was awash with views on what the government should do to safeguard jobs. Tough call however you look at it.
Sterling wasn't too badly affected although it did have a mildly negative day. That will be corrected to some degree today. I am writing this report a little later than normal so I have the advantage of seeing the UK GDP data release and it is a positive report. The UK economy grew at 0.6% in the 4th quarter of 2015; better than previous estimates and better than the markets had forecast. That is perhaps the most positive piece of GBP news for a while and traders will heave a sigh of relief as they close out some of their short Sterling trades.
Earlier in the morning, we saw poor French producer price data and heard news that German job creation is the weakest it has been for 7 months. That is not what the European Central Bank wants to see but there is a bright spot in the form of improved French retail spending. EU consumer confidence is going through a rough spell and the potential for the UK to exit the Eurozone is damaging confidence on both sides of the Channel. The net result of this is that the GBP-EUR exchange rate seems welded to the €1.2650 level (roughly 79p per €1).  It may take something substantial to get it moving again.
The US Dollar is showing all the signs of uncertainty but it remains within known recent ranges. A lack of clarity over the Federal Reserve's interest rate plans is weighing on the USD and it remains at the weaker end of its range against Sterling and the Euro. There is a distinct lack of US data today, so we are likely to see it stay in that pattern. Tomorrow brings the US employment report and wages data. That'll shake it up a bit and should provide enough volatility for most short term plans.
And an Irish lad who took advantage of his father being away is facing the consequences today. His party made a mess of the house and enraged his dad as it was not discussed before the father went away. So, by way of punishment, his father is selling the kid's IPhone on line, "I  have two options: Option 1: I can sell the phone to buy some wipes, Dettol solution, bottles of Cif and general janitorial items to clean up the mess. Or Option 2: I go out the back and drop kick it over the wall." For the sake of the blameless phone, I hope he sells it.


Today's Major Economic Releases

Market BST Data/Event Previous Expected
GBP 08:30 UK: GDP final release, % q/q (y/y) 0.5 0.5
GBP 08:30 UK: Current account, £bn -17.5 -19.5
EUR 09:00 E19: Flash HICP, % y/y -0.2 -0.1
EUR 09:00 E19: 'Eurostat' core (HICP x fd, alc, tob, ene) % y/y 0.7 0.9
CAD 12:30 Canada: GDP, % m/m (y/y) 0.2 0.2
USD 12:30 US: Initial jobless claims, k (4wma) 265 265

FX Research by David Johnson

Daily Currency Analysis with Michael Hart

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