Thursday June 30, 2005 - 11:15:07 GMT
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Pound Breaks 1.8000 as GDP Disappoints
Sterling broke the key 1.8000 barrier in morning European trade tonight as bids evaporated after a disappointing decline in UK 1Q GDP to 0.4% from 0.5% expected. More importantly, UK growth on a year over year basis slowed to 2.1% from 2.7% which itself was revised downward from 2.9%. Despite registering 51 consecutive quarters of growth, UK appears to be heading for contraction and the new data is sure to renew speculation about a possible interest rate cut in the near future from BOE. The data also stands in stark contrast to the upward revision in US GDP figures released yesterday which printed 3.8% versus 3.5% consensus. If today’s FOMC meeting offers hawkish commentary from the Fed, talk will now turn to interest rate convergence between the pound and the dollar and cable is likely to see further selling in days to come. One note of caution to dollars bulls however. Throughout recent global expansionary cycle, UK was the front runner in economic growth and the first G-8 nation to experience a housing boom. It was also the first economy to see an inverted yield curve signaling the slowdown that is talking place presently. If UK’s economy continues to be the precursor of possible things to come in the US, then yesterday’s US GDP figures may well have been the top of the growth cycle.
Meanwhile the euro was boosted by positive German employment data initially taking out the 1.2100 figure but sagged after the pound news dragged the “anti-dollars” down. German unemployment was reduced by 23K versus expectations of 0K and the unemployment rate while still woefully high at 11.7% receded for the third month in a row from an all time high of 12% indicating that Europe’s largest economy may have stopped the bleeding for the time being.
FX Spot Overnight
- EUR trades to 2100 but comes right back weighed heavy by pound news
- JPY holds the 110 figure and trades back to the 8 month highs
- GBP blows through the 1.8000 figure on poor GDP data
- CHF trades above 2850 off cable weakness
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