UK GDP shows 0.6% expansion as expected, and Spanish unemployment posts significant falls amid GBP and EUR strength

Tom Tong26/Ιούλ/2013Currency Updates


The dollar got off to a good start yesterday with durable goods data coming in way ahead of expectations of 1.1% at 4.1%. However the dollar saw all its hard work undone once there was a realisation that the larger than expected figure was due to automobile sales; core durable goods exclude these figures and so in reality printed flat growth.

There is a keen interest in the FOMC meeting at the end of July, with many market participants anticipating the dollar to weaken. Although the meeting will not conclude on when the US will stop its bond buying programme, it is largely expected that they will reduce bond buying from 85bn to 65bn in September.

We’re also seeing a fresh debate in congress to raise the debt ceiling, a view shared by the House of Republicans. This brings fresh memories of the debate two years ago where the White House battled for months before Obama signed it into law. This move resulted in the US being stripped of its AAA rating; however it seems that this is a jousting match between the republicans and Obama ahead of the members of congress return to Washington and is far from fruition.

Today’s main data is the revision of the University of Michigan consumer sentiment index this afternoon.


Yesterday the IMF called for increased action to end the crisis in the eurozone. The IMF’s emphasis was on the reparation of bank’s balance sheets, arguing that further cuts to interest rates may be necessary to boost growth. Increased reforms in the banking sector, including the re-capitalisation of weak but viable banks and the closure of non-viable banks were also called for.

Further to last month’s briefing, the IMF yesterday called again upon France to lower its labour costs and halt tax rises to boost growth. Despite President Francois Hollande’s vow to reduce unemployment by the end of the year, unemployment figures are expected to rise.

Thursday saw the release of the German IFO business climate figures, which fulfilled expectations and came out as analysts expected. Additionally, the Spanish National Statistics Institute released better than expected unemployment figures, at a rate of 26.3% compared to last month’s 27.2%.

Today is a relatively quiet day in terms of tier one data, with markets focused on next week’s ECB conference on Thursday.


UK GDP grew at the fastest pace (0.6%) in three quarters in Q2 of this year and met analysts mean expectations, but this was not enough to stop a significant sell off in sterling trading. GDP was 1.4% higher than Q2 2012 and UK manufacturing rose 0.4%, with services rising 0.6%.

Despite these recent improvements in UK economic performance, the BoE said in its July meeting that the economy is still weak. Therefore, improved UK economic performance could dissuade the BoE from adding to stimulus in the future.

The pound sold off as traders may have been looking for a better than expected GDP result, there is also concerns that the UK’s growth will be unsustainable due to a base in cheap credit and artificial stimulus rather than a real rebalancing of the economy towards higher-growth, more productive sectors, with positive industry surveys and housing market figures potentially giving a misleading picture of the future path of growth. However, the pound has retraced the majority of its losses during overnight trading.

After yesterday’s Tier 1 data there is little news coming out of the UK today.


Written by Tom Tong

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