GDP Report Due – Pound Ready To Move

By Pete Southern in Currency Articles | July 27, 2015 13:37 |

The Pound put in a fairly optimistic performance against the majors on Friday as investors geared up for this week’s UK GDP report. Data due for release on Tuesday is expected to show that economic growth accelerated from 0.4% to 0.7% during the second quarter of the year. If the report prints in line with the median market forecast then the British Pound will likely appreciate as Bank of England rate hike bets surge. A stronger-than-anticipated score could send the Pound rocketing higher but a disappointing result could negatively impact demand.

Euro

Crisis fatigue is a term that has been used quite often over the past five years to describe lulls in the market when headlines seem to suggest that investors should be exercising caution. With a seemingly endless supply of things to worry about in Greece traders have become accustomed to hearing bad news and subsequently the market reaction to each negative headline has become less pronounced.

On Friday negotiations over Greece’s third bailout package were delayed because officials weren’t happy about the security implications of holding the talks in a hotel. But with the worst of the wrangling behind us, traders did not deem the latest snag to carry a significant enough threat to warrant depreciation in the single currency. After months of true uncertainty what difference is another three days going to make?

Data-wise a report on Friday showed that private sector output slowed from a rate of 54.2 to 53.7 in July as Greek concerns softened business confidence in the currency bloc’s largest two economies, Germany and France.

US Dollar

The Pound declined initially against the US Dollar on Friday but Sterling recovered during the afternoon when an American report indicated that new home sales plummeted -6.8% in June, which massively undershot economists’ expectations of a slender +0.3% rise.

Later on in the week the Federal Reserve is almost definitely going to leave interest rates on hold but the ‘Buck’ could rally if Governor Janet Yellen talks up the possibility of hiking rates in September. The ‘Greenback’ will also be sensitive to second quarter US GDP data, which is predicted to show that annualised output rebounded from -0.2% contraction in Q1 to expand +2.6% in the second three months of the year.

Canadian Dollar

The Sterling to Canadian Dollar exchange rate remained close to a six-year high on Friday as a market-wide sell-off in commodities deterred traders from investing in the risk-sensitive ‘Loonie’.

A sharp drop in crude oil prices on Friday brought ‘black gold’ down by -5% on the week to a new three-month low as supply continued to increase faster than demand. The threat of new oil production in Iran drove the price down on Friday, throwing economists’ predictions of a rebound in the second half of the year into doubt.

Australian Dollar

The commodity-sensitive Australian Dollar declined by around two cents against the Pound on Friday. Sterling struck a fresh six-year high against the ‘Aussie’ as key Australian mining exports such as platinum, gold, copper and zinc plunged to multi-year lows. Because mining and the extraction of raw materials accounts for a large proportion of the domestic economy, traders worried that the price declines could prompt policymakers to loosen monetary policy further over the next few months.

New Zealand Dollar

Sterling rallied by over a cent against the New Zealand Dollar on Friday as the latest slump in global commodity prices drove investors out of risk-sensitive currencies and export-led economies. As the ‘Kiwi’ fits neatly into both of these boxes the decision to sell the Antipodean currency was fairly straightforward for the majority of currency traders. Of course, last week’s -25 basis point interest rate cut from the Reserve Bank of New Zealand also weighed over NZD

Pete Southern About Pete Southern
Pete Southern is an active trader, chartist and writer for market blogs. He is currently technical analysis contributor and admin at this here blog.


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