Although the Pound began another week of trading in a slightly stronger position against the Euro, the British asset reversed gains after German sentiment data was published.
The IFO measures of the German business climate, current assessment and expectations came in at or above the forecast levels, indicating that the Eurozone’s largest economy had an upbeat start to 2014.
As asserted by London-based forex expert Kathleen Brooks, ‘The Euro is being supported by improvement in the growth outlook as economic data, especially from Germany, showed improvement. We see room for further upside for safe-haven currencies due to the risk-aversion in the market.’
In the aftermath of the data release Sterling lost ground against a broadly strengthening Euro.
However, the Pound snapped a recent run of declines against the US Dollar as investors looked ahead to tomorrow’s UK growth report.
The data is expected to show 0.7 per cent expansion in Britain’s fourth-quarter GDP, down slightly from the growth of 0.8 per cent seen in the previous three months.
Currency strategist Adam Cole forecast that the UK will enjoy ‘a continuation of the above-trend growth that we’ve seen for three quarters. The market is trading on the timing of the first rate hike we do think Sterling can keep outperforming.’
In the opinion of the Royal Bank of Canada, the institution Cole works with, the Pound will hold its own against the US Dollar and strengthen to 78 pence per Euro before the end of the year.
The Pound was also supported by comments issued by Prime Minister David Cameron. Although the PM acknowledged that the UK economy still has a way to go, he also stated that the economy is clearly recovering.
During a BBC Radio interview Cameron stated; ‘If you look at the most recent data on the economic figures it’s shown quite a balanced recovery. Do I want to see more growth outside London and the Southeast? Yes. Do I want to see more export-led growth and manufacturing growth? Yes, absolutely, and that’s all part of the long-term economic plan.’
If the GDP figure meets estimates it will mean that the UK’s economy expanded by 1.8 per cent across 2013 – only 0.1 per cent less than US economic growth and considerably better than the 0.4 per cent contraction in the Eurozone.
However, given that the most recent round of UK manufacturing, services and construction output data have all fallen short of estimates, tomorrow’s UK GDP report could deliver a negative surprise and the Pound may fall as a result.
After North American trading begins the GBP/USD pairing could trim gains if US new home sales figures add to the case for the Federal Reserve tapering stimulus by more than 5 billion Dollars when it meets on the 29th.
Over the next few days other influential UK reports to look out for include Nationwide house price figures, UK mortgage approvals/net consumer credit data and the GfK consumer confidence survey.
Pound (GBP) Exchange Rates
[table width=”100%” colwidth=”50|50|50|50|50″ colalign=”left|left|left|left|left”]
Currency, ,Currency,Rate ,
Pound Sterling,
,US Dollar,1.6537 ,
Pound Sterling,,Euro,1.2083,
Pound Sterling,,Australian Dollar,1.9000,
Pound Sterling,,New Zealand Dollar,2.0055 ,
US Dollar,,Pound Sterling,0.6049 ,
Euro,,Pound Sterling,0.8276 ,
Australian Dollar,,Pound Sterling,0.5272 ,
New Zealand Dollar,,Pound Sterling,0.4986,
[/table]
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