World Market Pulse Forex Update: Analyzing Sterling’s GDP Boost

By world market pulse team on October 27,2010

The GBP received a significant boost as it posted its biggest one day gain against a basket of currencies in 3 months after the surprise rise in UK Q3 GDP to 0.8% in addition to a ratings upgrade from Standard and Poors to a “stable” outlook bringing them into line with their agency peers, Fitch and Moody.

An Overview Of UK GDP Figures: U.K. GDP came in stronger than expected, up 0.8% q/q and 2.8% y/y in Q3, compared to the consensus forecasts for 0.4% and 2.4% respectively. This was the highest annual growth rate since Q3 of 2007. Service sector growth came in surprisingly strong, up 0.6% q/q, same as in Q2, while industrial production growth was 0.6%, after 1.0% in Q2. Construction sector output rose 4.0% q/q, after rising 9.5% in Q2, when it rebounded after weather related weakness in Q1 of 2010.

Meanwhile according to analysts at BNP Paribas, the sterling remains a sell despite the better UK Q3 GDP. We base our projection on weak money supply and credit indications, the sharp decline of savings seen over the past three quarters and weakening cyclical conditions coming on the back of fading global demand.

GBP-USD Outlook: GBPUSD rebound on stronger GDP data expected to be short lived providing a renewed buying opportunity. Although The UK GDP has come in much stronger than expected with growth the strength has been driven purely by the construction sector which rose 4.0% q/q in Q3, up 11.0% y/y, the highest reading since Q1 1998. According to BNP Paribas analysts, sterling gains following the UK GDP data are likely to be short lived providing renewed a medium term selling opportunity. GBPUSD is now approaching the 1.5875 high seen last week. A break above here could see sterling recovery back towards the 1.60/1.61 peaks seen over the past couple of months.



Britain Economic Overview: PM David Cameron is to strongly oppose demands from Brussels for significant increases in Britain's contribution to the EU budget and instead call for spending cuts when EU leaders meet in Brussels tomorrow. While the summit is expected to be dominated by Germany's demands for treaty changes to discipline states UK has made it clear he will not accept that the EU's budget should increase by 6 per cent at a time when national governments are paring back spending. Meanwhile leading indicators in the UK economy, along with the housing market have turned sharply lower suggesting that quantitative easing is still likely to be on the agenda, but likely to be delayed until the beginning of 2011.

For More World Market Pulse ETFs stocks futures commodities forex indicators forecast http://worldmarketpulse.com/

Can GBP Beat The Double Dip To Stay Positive?

By world market pulse team on October 13,2010

Sterling traders have been worried over the news about falling house prices in the UK with the release of the RICS House price survey for September which indicated that the number of surveyors reporting falling home prices increased relative to those reporting increases. The release not only corroborated the view that the UK housing market continued cooling recently and weighed on sterling sentiment but is also one of main reasons why ‘double-dip’ is starting to reappear in market discussions after the pound lost a little ground yesterday.


Inflation Report Supporting GBP: Despite data pointing to weakening demand and a cooling housing market, the CPI data release out of the UK corroborates the view that QE2 is still only a distant prospect. The CPI release indicates that inflation remains well above inflation targets with headline CPI at 3.1%, core CPI at 2.7% and RPI at 4.6% (all year over year figures). The CPI figures were almost exactly in line with expectations although the RPI came in slightly higher than the expected 4.4%. Positive inflation surprises last month triggered a temporary correction higher in market inflation expectations as proxied by the implied rate of the UK 5y Inflation swap.

Analysts at World Market Pulse expect that the inflation support is likely to continue adding to the GBP strength in the short term despite the release of the RICS House price survey; while analysts at the Deutsche Bank believe the door to further near-term gains to 1.6090/110 remains open as long as support at 1.5800 is unbroken. Indeed, an early dip to 1.5860 would create the necessary risk-reward conditions for a new bullish

For More World Market Pulse ETFs stocks futures commodities forex indicators forecast http://worldmarketpulse.com/

Britain Economic Overview: The Bank of England has reported a decline in services output in both June and July. Consumer confidence deteriorated more than expected last month. Industrial output is off 11% from pre-recession levels and has been flat since February. Retail sales seem to be holding up pretty well but consumer credit was up a meager 0.2% y/y. Business lending has fallen for five consecutive months. The government feels the Bank of England can come to the rescue if the economy does show serious signs of faltering as cuts and tax hikes hit home. Maybe yes maybe no; the BoE interest rates remain at record lows but QE remains an option. However, with the planned deficit reduction it seems unlikely that economic growth can do anything other than head south over 2011.

For More World Market Pulse ETFs stocks futures commodities forex indicators forecast http://worldmarketpulse.com/