The Pound made gains versus the Euro and the Dollar after a report showed that British exports helped the economy grow in the first quarter of the year. The uptick in exports outweighed the biggest slump in consumer spending in nearly two years as GDP expanded by 0.5% in the first three months of the year, matching initial estimates. The strong report gives the BoE increased room to hike interest rates in the near term to stave off swiftly rising prices. However, higher rates would likely support the GBP, which could in turn weigh on the country’s exports as British goods become relatively more expensive. In the near term, the positive report will provide significant support, albeit within the pound’s recent ranges.
The Dollar declined against the Pound and the Euro as mixed economic data out of the US supported those fears as durable goods orders unexpectedly fell. With the volatile transportation component stripped out, the booking of goods meant to last at least three years fell by 1.5% from last month, far worse than the expected 0.5% gain. The decline can be partially attributed to disruption in supplies of auto and technology parts stemming from the earthquake in Japan earlier this year, but the biggest decline in half a year was due largely to slowing global demand.
On a brighter note, the house price index declined by less than expected, registering a decline of 0.3% versus last month’s 1.6% drop. Nevertheless, commodity prices have moved higher this morning, including the volatile growth-sensitive metals used in manufacturing such as silver and copper. Global equities have fluctuated between gains and losses, but fears of slowing global growth and possible debt default in Europe have the dollar generally well supported against its higher yielding counterparts.
The Euro made small gains against the Dollar while declining against the Pound yesterday as investors weigh the potential for debt restructuring in the Eurozone’s weaker members against the common currency’s relatively high yield.
The euro dropped against 12 of its 16 most actively traded counterparts as regional officials disagree on how to resolve the debt crisis. ECB member Juergen Stark told reporters that Greece, Ireland and Portugal need a “drastic change” in economic policy and that restructuring debt “cannot, and must not be the solution.” He urged Eurozone leaders to “please consider the consequences.” However, on the other side of the argument, finance officials from the region’s periphery economies are calling for more leniencies in the form of longer time frames and lower interest rates. The EUR has also fallen against a number of its regional counterparts as its yield advantage is expected to narrow in the coming months as the UK, Switzerland and Sweden all look to tighten policy before the end of the year.
Data released 26.05.2011
US 13.30 Revised GDP (Q1)
US 13.30 Initial Jobless Claims (w/e 21st May)