The Pound declined against the Euro and the Dollar yesterday following data showing that Britain has only just emerged from recession at the end of 2009, suggesting any UK monetary tightening was still a long way off. U.K. gross domestic product expanded by 0.1% between October and December, which is well below analysts’ forecasts for growth of 0.4%.
The expansion will come as a relief to the U.K. government, which forecast a return to growth at the turn of the year. The news could also boost Prime Minister Gordon Brown ahead of national elections that must be held by June 3, with recent polls suggesting that the opposition Conservative Party’s solid lead is narrowing. Also to note the Bank of England has warned that the recovery is likely to be slow and fragile given continued strains in the banking system and the need to reduce high levels of public sector and household debt.
The Dollar made gains against the Pound and the Euro as investors pared positions after weaker-than-expected U.S. home prices dented risk appetite. Investors will remain wary this week ahead of key events, including news on whether U.S. Federal Reserve Chairman Ben Bernanke would win a U.S. Senate vote for a second term, as well as a rate announcement by the central bank. The market was looking for further market guidance from U.S. President Barack Obama’s State of the Union address on Wednesday.
The Euro declined against the Dollar while making gains against the Pound despite a German survey showing a bigger-than-expected rise, with the Ifo business climate at 95.8 in January, up from 94.7 in December.
Data released 27th January
UK 09.30 CBI Distributive Trades Survey (January)
US 15.00 New Home Sales (December)
US 19.15 FOMC Rate Announcement