UK economy in a better place

Following UK GDP surprising on the upside last week and coming in better than expected the Pound looks nicely positioned for further gains.UK economy in a better placeA key facet of the data is that it helped the UK to avoid a triple dip recession. Growth is going to be a key driver of currency movements going forward as economies around the globe search for growth.

We saw this in the markets with the Pound snapping higher against the USD and the Euro and continue its good run on Friday. The better than expected UK data comes against a backdrop of disappointing data from the US and China in particular and this was another reason the Pound rallied.

We saw disappointing German data last week in the form of PMI data and also the German IFO survey. Recently there have been more calls for a rate cut in Europe and recently the head of the Bundesbank Weidmann mentioned that if underlying data suggested so then a rate cut would follow.

The weaker PMI data and the IFO survey have now lead to most economists expecting a 25 basis point rate cut on Thursday. This should weaken the Euro against its major currency peers including the pound and the US Dollar.

A rate cut is not definite and the ECB always keep their cards close to their chest so all eyes will be on the announcement on Thursday.

Some have argued that a rate cut alone will not be enough to drive growth and we could see additional measures announced by the ECB to assist struggling peripheral economies, if so this could supportive of the euro.

US preliminary GDP came in weaker than expected on Friday at 2.5% against an expectation of 3.0%.

The weaker data in essence supports the view that the FOMC will keep their foot on the gas in relation to asset purchases and this in turn supports a weaker USD. We have lots of data this week including the big non farm payroll number on Friday and in addition the Federal reserve interest rate decision on Wednesday.

We are not expecting too many surprises from the Federal Reserve and if anything they are likely to offer a slightly more dovish tone than previously which will support a weaker US Dollar.

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