Week Ends With Another Look At UK Growth

Markets played out their moves from the Federal Reserve’s latest minutes fairly early yesterday. There was, once again, little impetus in the afternoon session to drive the USD further onwards against its crosses. The greenback has continued to hold on to gains through last night’s Asian session, however.

Emerging market currencies were the talk of the town, after once again being hit by fears that the high growth party is over in places like Indonesia, India, and Brazil. The improvement in the economic prospects in the United States has pushed the Federal Reserve to start preparing the market for the reduction of its asset purchase plan. The normalisation of the monetary policy of the world’s economies will be the key battle for central banks in the 2nd half of the decade. The reduction of QE means less new money out there to look for an investment destination.

Sterling has remained strong overnight as we wait for the second reading of Q2 GDP from the UK. We are looking for the figure to remain at 0.6%. However, the sterling support has likely come from traders betting on the possibility of an upside surprise to the number, given the recent almost bullet-proof data that the UK has been pumping out. Certainly, more economists are looking for the figure to be revised higher than lower when released at 09.30. Within this number, we’ll get a better look at the UK economy, with details of how imports, exports, private and government consumption are trending.

Germany’s Q2 GDP figure was confirmed at 0.7% earlier this morning. The attached release was fairly bullish on the German economy, citing a gain in momentum for growth, alongside a 2.2% growth in exports on the quarter. Capital investment also rose strongly, although you would argue that it’s not the German economy that needs the investment, but the periphery.

The eurozone is looking stronger, and yesterday’s PMI numbers confirmed this. But the level of growth, despite being positive, is nowhere near strong enough to start reducing the onerous debt/GDP levels in the region. Until it is, the eurozone recovery will remain a recovery in name only.

Thursday’s jobless claim numbers failed to boost the USD, as dollar bulls would have helped following a slight miss on the headline number. 336,000 people claimed unemployment benefits in the US for the first time last week, 6,000 higher than expected, although the numbers were helped by 2,000 being revised off the previous number. This was not a jobs number that really helped anyone’s thoughts around tapering.

With that said, we do expect the gradual grind of USD strength to continue today.