The Pound (GBP) could regain some ground against the Euro (EUR) and other major peers on Friday if the session’s key UK data release offers support.
After taking in beating over the past two sessions, Sterling could recover from a ten-week low against the US Dollar (USD) if the latest UK Gross Domestic Product comes in as forecast.
Economists are widely expecting the Office for National Statistics second estimate for economic growth to show that the UK economy expanded by 0.8% on a quarter on quarter basis and by 3.1% on a year on year basis.
The data will have either to come in on target or better to convince the markets to buy Pounds once more. After Bank of England Policy Committee member, David Miles said that the bank could leave interest rates on hold at record low levels for longer the markets will need to see positive economic data.
Confusion as to when rates in the UK will rise has been a major contributor the Pounds movement over the past few months. Earlier in the year, Central Bank Governor Mark Carney suggested that rates could rise before the end of the year and earlier than the markets may expect. This week however he seems to have back peddled on those comments, a move which has irritated investors.
As a result, economists are now increasing their short positions for the Pound. A short position is a bet that an asset or currency will decline in value.
‘It is hard to avoid the conclusion that they simply want to keep rates as low as possible for as long as possible irrespective of the outrun in economic data. I think the best way to articulate a mildly bearish sterling view is to go short” the Pound versus the Dollar’, said a senior currency strategist at Commerzbank AG on Wednesday.
Sterling could soften further against the Norwegian Krone (NOK) if Friday’s Norwegian balance of trade data shows that the Scandinavian nation’s trade surplus widened in July.
The Pound is likely to advance against the Euro on Friday as Thursday’s data releases showed that the Eurozone is close to sliding back into recession. Inflation in the region fell closer towards deflation.
With no market moving data out of the single currency bloc, the currency will be vulnerable to reports out of the US, UK and geopolitical concerns.
Updated 15/08/14 at 12:30 GMT
This morning’s UK Gross Domestic Product (GDP) data needed to avoid a negative result in order for Sterling to have any hope of clawing back its losses over the past few days.
Fortunately the quarter-on-quarter GDP stayed true to the forecast figure of 0.8%, and year-on-year GDP showed a slight gain from 3.1% to 3.2%.
Despite the better-than-expected results the influence on the Pounds movement has been minimal. This is chiefly because of overwhelming negative sentiment towards the Bank of England’s (BoE) decision to delay an interest rate hike to 2015.
Expect Sterling to trend upwards extremely fractionally depending on the pairing. Safe haven currencies, such as the Japanese Yen, may soften as geopolitical tension wanes ahead of Russian President Vladimir Putin meeting his Finnish counterpart in an effort to defuse tensions over Ukraine.
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