Tag Archives: UK recession
Sterling has lost a lot of ground against most major currencies since the start of 2013 but with growing global uncertainty could we see more of a push from the pound? There has not been an abundance of data releases concerning the UK or the Eurozone this week yet we have still seen GBP/EUR rates range between a low of 1.1684 and a high of 1.1813. This seems to be down to growing uncertainty surrounding both parties.
It is no secret that some Eurozone economies have been struggling recently and it seems as though we are constantly hearing rumours that another Eurozone state is heading towards financial meltdown. Couple this with the fact that there is a distinct possibility the UK could be heading in to a Triple Dip Recession and this all creates a lot of uncertainty in the market.
On Tuesday The National Institute for Economic and Social Research (NIESR) announced that they estimate the UK economy has grown by 0.1% in the first quarter of 2013, revised up from -0.1% in the previous announcement. This figure was an estimate of what will come out when Gross Domestic Product (GDP) figures are released in two weeks time. In order for the UK to avoid a recession this figure would need to be 0% or higher, this is how tight it is!
My general opinion is that the GDP announcement will be the main market mover in the coming weeks and with it being such a close call we could see Sterling fluctuate in the build up. I personally feel that if the UK goes in to a Triple Dip Recession then we could see Sterling fall significantly against most major currencies, on the other hand if it is avoided there could be some strength for the pound off the back of this.
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Yesterday’s GDP figures indicated that the UK’s economy is not quite as far out of the woods as some senior officials would like us to believe. This figure came as somewhat of a surprise, considering in general UK economic data has been steadily improving since the start of the year. Following the release of these figures the EUR saw sharp gains against sterling, pushing levels back down through 1.22 and for a while it looked as if it may continue on, eroding the fantastic buying opportunities we have seen of late.
However, by late afternoon this spike had been erased and GBP had not only moved back through 1.22 but surpassed the levels of the previous day, reaching a peak of 1.2277. In my opinion this proves just how little faith investors currently have in the single currency and the well documented problems not only Spain but across most of the EU region, mean that any move back through 1.20 is unlikely in the short-term. We also need to remember this was only the initial figure and it is due to be revised twice over the coming months, so don’t be surprised if the ‘recession’ we have re-entered is short lived.
GBP/USD levels continue to hold firm above 1.60 and today even touched briefly on 1.62, before falling away during afternoon trading. The greenback is suffering from a string of positive data in the US, including a fall in unemployment figures and a faster growth rate than predicted. This would usually indicate strength for a countries currency but as I have written previously the USD is often used as a global barometer, meaning poor economic growth leaves investors running for the relative sanctuary of the Dollar. On the flip side an upturn in the global economy (often based on data released in the US) means investor’s appetite for risk increases and they move away from the safe but usually low yielding USD and will invest in riskier currencies such as the ZAR or NZD, which fluctuate more and therefore offer more chance of a higher yield. US GDP figures are released tomorrow at 12.30 and any variation from the 2.3% prediction could see movement for GBP/USD.
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