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The Pound made small gains against the Euro while declining against the Dollar following a report showing that the British economy is in fact contracting. GDP shrunk by 0.2% in the 4th quarter after expanding by 0.6% in the previous quarter. With the outlook worsening rather than improving for the British economy, it appears that the UK is headed toward recession. The Pound also came under pressure after minutes from the BoE’s last meeting showed that another round of quantitative easing may soon be at hand. Bank Governor Mervyn King told reporters yesterday that policymakers can increase stimulus again if needed to guard against a “renewed severe downturn.” Nevertheless, the Pound remains within its recent ranges as demand for the perceived safety of British government assets remains high with the ongoing turmoil in the Eurozone.
The Dollar made gains against the Pound and the Euro as declining stocks and ongoing worries over Eurozone debt are outweighing a possibly dovish stance from the Fed.
Fed Chairman, Ben Bernanke said the US central bank might consider further monetary easing through bond purchases while further delaying the timing of an eventual interest rate rise until late 2014, some 18 months later than previously forecast. The dovish Fed tone could well dominate forex markets today, especially as the economic calendar is mostly second tier data.
The Euro declined against the Pound and the Dollar after the ECB made it clear that they are opposed to restructuring Greek bonds. S&P added further severity to the situation when it released a statement that a Greek default was all but a foregone conclusion, even should policymakers and the private sector broker a deal over a second bailout package. German Chancellor Merkel cast doubt over the sustainability of the current situation, telling reporters that “We haven’t overcome the crisis yet. Of course, there’s Greece, a special case where, despite all the efforts that have been made, neither the Greeks themselves nor the international community have yet managed to stabilize the situation.” The grim outlook was further compounded yesterday when the IMF downgraded their assessment of global growth for 2012, adding that Europe will likely slip back into a mild recession.
Data released 26th January 2012
UK 11.00 CBI Distributive Trades Survey (January)
US 13.30 Durable Goods (December)
US 13.30 Initial Jobless Claims (w/e 21st January)
US 15.00 Leading Indicators (December)
US 15.00 New Home Sales (December)
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