USD GDP Figures and German bailout vote boost markets, but for how long?
It is not only the UK enjoying some good weather today, the pound too is enjoying a brief warm spell. With over 1% gained today against the Dollar and the Yen, we have also seen strength against the Kiwi and the pound has retraced some of the highs seens earlier this week against the Euro.
US GDP figures released this afternoon showed a 0.1% increase in their GDP for the final estimate of Q2. Whils this is good news for the global economy it neglects to take into account the more recent data that has shown global consumption and growth falling. Nevertheless it is good news for the global economy and combined with news from Germany that Merkel achieved a higher than expected majority in pushing for an expanded bailout fund helped boost stock markets and helped EUR/USD climb over a cent.
I believe that the reason the pound is enjoying some strength this afternoon is signs the global economy is not about to go down the drain. Today’s events also paint the UK’s current economic position in a better light. Yes the economy is suffering in the UK, but things are bad everywhere and as long as the UK gets through this, we should be in a good position to capitalise on better times. As George Osborne stated, he felt the measures undertaken to manage our debt problems have made the UK a ’safe haven’ going forward. I feel investors in this afternoon’s improved global outlook have been given reason to have faith in the pound. Yes there are challenges ahead but the whole world is suffering. Germany getting behind the Euro is a good thing for the Euro and the pound. A crippled Eurozone will not buy British goods. A crippled Eurozone will not need the UK’s services. A crippled Eurozone will actually hurt our banking sector and stifle the fragile recovery we are experiencing in the UK. A crippled Eurozone also places extreme strain on the global economy, which in turn does not bode well for the UK which benefits massively from a strong global economy to export products and services to.
It is still very likely that the pound will suffer further before things get better. QE could well be necessary in the UK based on all the recent economic data. We have the final revision for Q2 GDP next Wednesday 5th October which I am sure be key in shaping the MPC’s decision on Thursday 6th October. In all probability it is probably still too early to really launch QE. The MPC will need some very strong indications to launch this as there are other options available. There is the chance the economy can bounce back itself and other options from government such as tax breaks and public infrastructure spending.
So just like today’s and the weekend’s sunny spells in the UK will soon come to an end, so too I feel will some of the current attractive trading levels in the coming weeks. If you have any foreign exchange requirements we can assist in the safe transfer of your funds at commerical exchange rates. Please feel free to get in touch on (+44) 01494 787 458 or e-mail email@example.com to discuss all the options available to you.