Prior to the release of UK economic data the Pound climbed to a six-week high against the Euro as the situation in Cyprus enters a new phase.
The Pound Sterling Exchange Rate was in the region of 1.1810 against the Euro as of 10:14 am
As the European session opened sterling surged against the Euro in response to news that Cyprus is attempting to avert cash outflows occurring when the nation’s banks reopen.
In the wake of this recent bout of Eurozone turmoil the appeal of UK assets has increased, and the Pound has enjoyed a more bullish relationship with its peers as a result. However, Sterling slid against both the Euro and US Dollar following the release of several pieces of significant UK data.
A report released this morning has shown that in the fourth quarter UK GDP contracted by 0.3 per cent, quarter-on-quarter. This figure was in line with a previous estimate and takes the UK one step closer to an unprecedented triple-dip recession.
According to the report compiled by the Office for National Statistics, the contraction was primarily led by a drop of 2.1 per cent in industrial production.
Year-on-year GDP expanded by 0.2 per cent, slightly lower than the figure originally estimated.
Separate data showed that UK total business investment declined by 0.8 per cent quarter-over-quarter, better than the predicted drop of 1.2 per cent but down from the 3.8 per cent growth recorded in the three months to September.
Meanwhile another report revealed that Britain’s deficit with the rest of the world narrowed from 15.074 billion Pounds in the third quarter to 14.037 in the fourth. Economists had expected the gap to narrow to 12.7 billion Pounds.
The Bank of England has also asserted this morning that UK lenders will have to raise 25 Billion Pounds to make up a capital shortfall in order to cover higher estimates for expected loan losses, potential fines and better risk calculations.
The BoE stated: ‘The actions that banks need to take depend on whether, and if so how far, their adjusted capital falls short of the level the FPC judges banks need to ensure sufficient capacity to absorb losses and sustain lending in the current juncture.’
Earlier this week the BoE’s deputy governor for financial stability asserted: ‘We’re not going to be able to recover as well as we should if our banks remain wounded. They need to repair themselves.’
Although these results caused the Pound to modestly decline against several of its peers, ongoing Eurozone concerns could see the Pound rebound against the Euro in the hours ahead.
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