UK Q1 GDP data is the big data release this morning and from Sterling’s perspective it is a very important number.
Since the move in the middle of March, Sterling has been steadily range trading waiting for this number, and bullish or bearish should mark the next leg and away from the current ranges. Estimates range from +0.1% to -0.3% for the first quarter and 0.2% to 0.3% for the year-on-year figure.
It is very likely that the unseasonable cold snap will act as a drag on the figures and the market seems positioned for either a very weak positive number or a return to recession for the UK.
Keeping with the theme of a grim outlook, the ECB is widely expected to cut rates at next week’s monthly meeting in the face of increasing poor economic data.
The worry is that the downturn is spreading from the periphery to the core which in tandem with tighter lending conditions and disinflationary conditions filtering through from lower oil prices, the ECB medium term inflation target will undershoot.
Dovish comments from several ECB board members add to the sense that the ECB is preparing for action. it is unlikely the ECB would be influenced by comments over the value of the Euro but a side effect of any rate cut will see the Euro weaken, making certain influential politicians very happy.
Tomorrow US GDP is due but with nothing like the hype attached to the UK number this morning. Estimates are for a colossal (in comparison to the UK that is!) 1.4% growth in Q1 and 3.1% year on year. At current growth rates we will witness a large divergence in economic outcomes compared to this side of the Atlantic. The US Dollar should benefit from this.