23 Dec

Sterling falls further following GDP figures

Sterling continued to slide back on the foreign currency exchange market yesterday after an unexpected decline in Q3 GDP from 0.8% to 0.7% increasing concerns that when austerity measures kick in next year the growth may start to slip back even further.

With retailers this week warning that the current cold weather could affect sales figures before the expected rate VAT rate hike on January 1st, there are fears that Q4 growth figures could also undershoot and fall well below expectations. There was a silver lining to this particular cloud as business investment grew by almost twice market expectations, suggesting that businesses are starting to feel a little more confident about the future.

Sterling therefore weakened against the US Dollar, Euro and the resurgent Swiss Franc, hitting fresh all-time lows against the Swiss currency, while also touching 3 month lows against the US Dollar. It hasn't been helped by comments from a member of the Bank of England monetary policy committee overnight who suggested that the UK could fall back into negative growth next year.

There were no surprises from the Bank of England minutes, though there was a suggestion that more members of the MPC view inflation as a concern, than was the case a few months ago, shifting the emphasis towards favouring higher interest rates tightening bias than was the case two months ago.

Despite reports that China was ready to buy up to €5 billion of Portuguese debt in an attempt to back up their pledge to help Eurozone countries with sovereign debt issues, the Euro continued to fall on these very fears. To be honest, to have any affect China will have to buy a lot more than €5 billion if they expect to turn around the negative sentiment hanging over Europe.

In the US, Q3 GDP also disappointed slightly, despite being revised up by less than expected coming in at 2.6% against expectations of 2.8% but up from the previous 2.5% figure.

Today the weekly jobless claims are expected to come in around 420,000, unchanged from last week, while durable goods orders for November are expected to have declined by 0.5%, a slight improvement from October's decline of 3.3%.

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Exchange Rates for Thursday 17th May 2012

Sterling falls further following GDP figures

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