Yesterday Q1 GDP figures were released for the UK and showed that the economy contracted for the second month in row, meaning the UK has technically re-entered recession as many feared last year. The published figure of -0.2% came as a surprise considering the market was expecting growth of 0.1%The poor GDP data only put a temporary end to sterling’s recent rally, which has seen the pound trade at its strongest against the dollar since early September and a 20-month high against the euro. GBPUSD hit a low of 1.6084 after the release but recouped those losses to trade at 1.6142 by the end of the London session. GBPEUR briefly fell to a low of 1.2162 before ending the session over 1.22 again.
In response, Chancellor Osbourne said yesterday “The one thing that would make the situation even worse would be to abandon our credible plan and deliberately add more borrowing and even more debt”
UK industrial output held steady in April and price pressures weakened. The industrial output balance was +24 in April, the same as in March. The highest level since March 2011, when the balance stood at +27.
Figures released overnight from Nationwide show Consumer Confidence rose sharply to 53 in March from 44 in February to hit its highest level since June 2011.
In contrast, this morning data released by BBA has shown UK Mortgage Approvals fell to 31.9k from 33.1 last month. Despite the disappointing data, the pound remains at similar levels to yesterday’s pre-GDP release GBPUSD is at 1.6188 and GBPEUR sits at 1.2222.
EURUSD climbed to fresh highs of 1.3236 during Wednesday’s session but retreated later on to trade at 1.3200 by the end of European trading.
The key release yesterday was FOMC interest rate decision and accompanying press statement. As expected interest rates remained on hold at 0.25%, but the Fed mentioned the economy has been expanding moderately, with the US labour market improving in recent months and household spending continuing to advance.
Despite improving conditions Fed Chairman Bernanke said officials see no rate increase before 2014.The US dollar weakened with GBPUSD hitting 1.6180 and EURUSD rising to 1.3229. QE3 will remain a possibility and this prospect is weighing heavy on the US dollar.
US Core Durable Goods orders dropped 4.2% in March, well below the 1.7% drop that was expected.
ECB President Mario Draghi yesterday welcomed latest IMF resources but warns governments must not become complacent and must continue with fiscal reforms. German Chancellor Merkel agreed with his call for structural reforms, but rejected stimulus spending to boost economic growth.
French presidential candidate Francois Hollande said yesterday that if he is elected in the May 6 election runoff, he will send other European Union leaders 4 proposals to amend the EU fiscal pact.
Germany’s economy is growing again and the government have said that expansion would accelerate this year. Predicting the economy will grow 0.7% this year and 1.6% next year.
In New Zealand, interest rates were kept on hold at 2.50%, noting that this level is appropriate for the time being. The central bank are said to be closely monitoring the situation and Governor Alan Bollard said the strong currency may lead to a policy reassessment in the future.