The UK economy has further to bounce back in order to get into positive growth

Foreign Exchange Rates Currency News - The UK economy has further to bounce back in order to get into positive growthThe Euro found support in the region of 1.3330 against the US Dollar.

Sterling / Euro and US Dollar exchange rates

The Pound declined against the Euro and the U.S Dollar yesterday and further losses may be likely in the short-term, after the final estimate of gross domestic product in the fourth quarter revealed a deeper contraction than first estimated. The report from the Office of National Statistics was expected to show a -0.2% result for the final three months of 2011 but came in at -0.3%, which raises the possibility of a technical recession this quarter.

In short, the UK economy has further to bounce back in order to get into positive growth and despite the recent good run of economic data, the report yesterday will be a big blow to officials hoping that the UK would avoid a consecutive contraction this quarter. The recent positive outlook could evaporate with this news and a deeper contraction could also raise the possibility of further quantitative easing from the Bank of England in order to support the economy.

The UK currency slipped back towards 1.19 versus the Euro in a kneejerk reaction to the figures and 1.59 against the U.S Dollar, as the annual growth rate of 0.5% basically means the economy has remained stagnant since Autumn 2010. There were further concerns over the implications of a decline in disposable income, but investment was revised marginally higher.

The current account data did not have a major impact with a fourth quarter deficit of £8.5 billion from a revised £10.5 billion previously. There were renewed doubts surrounding the economic outlook and also some fresh speculation over the possibility of additional monetary easing following the dovish comments from the Bank of England governor Mervyn King earlier this week.

From a technical perspective, there was continuing pressure for a correction following the Pound’s inability to break resistance in the region of 1.60 versus the Dollar and there was also a negative impact on risk appetite. The UK currency found strong buying support around 1.5850 last night and edged higher towards 1.59 by this morning.

A report from the Nationwide Building Society this morning showed that UK house prices fell by the most in two years this month. Property prices dropped 1% from the previous month, which represents the biggest decline since February 2010. From a year earlier, house prices fell 0.9%, the first annual decline in six months. A report this morning is expected to show that UK mortgage approvals fell to 57,200 in February, from 58,728 in March.

Euro / US Dollar

The Euro found support in the region of 1.3330 against the US Dollar and again challenged resistance levels in the region of 1.3380, before declining by the close of trading last night. Swings in risk sentiment will continue to influence the market but in terms of economic data, the headline Euro-zone money supply growth was marginally stronger-than-expected at 2.8% for February.

There were fresh concerns surrounding the Spanish economy yesterday, which unsettled the Euro to a degree, amid speculation that Spain may require a bailout at some stage given the scale of toxic debt. The single currency may find some support from the scheduled meetings at the end of this week and suggestions that Euro-zone officials will strengthen firewalls designed to protect the peripheral economies.

In the U.S, the durable goods orders data rose 2.2% for February, following a revised 3.6% decline the previous month, while the core orders rose 1.6%. There was some disappointment over the lacklustre gain and speculation that the U.S economy could falter. Risk sentiment declined through the course of the day, as equity markets retreated and increased support for the Dollar.

Data Released Today

U.K 09:30 – Mortgage Approvals (February)

GER 08:55 – Unemployment (March)

EU 10:00 – EC Economic Sentiment / Business Climate (March) – Industrial / Services / Consumer

U.S 13:30 – Final GDP (Q4)

U.S 12:30 – Initial Jobless Claims (w/e 24th March)

Related posts:

  1. Sterling Euro US Dollar Foreign Currency Forecast – The pound gained over 0.5% against the euro yesterday on the back of higher than expected inflation data
  2. The Pound rallies against the majors, after stocks bounce back from the first decline in five days
  3. The Euro clawed back above 1.30 versus the U.S Dollar exchange rate
  4. Exchange Rate News – The Pound declined against the Euro falling back towards 1.1470
  5. Pound Euro US Dollar Foreign Currency Forecast – The Pound rallied, rising back towards 1.6350

Article source: http://feedproxy.google.com/~r/ForeignExchangeOutlook/~3/znJ4At7PksA/

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