Pound falls on weak GDP data

Currencies Direct October 26th 2009 - 2 minute read

In the wake of Friday’s horrendous GDP data, there is now growing speculation that the Bank of England will extend their QE programme at the next meeting on November 5. This was reiterated by former MPC member Mr Blanchflower who on Bloomberg TV noted that the Bank of England will have to do another GBP50 billion and they could extend by as much as GBP250 billion in all from the current GBP175 billion. Naturally this is not good news for the pound and it is understandably under pressure this morning in the markets- the next major level on GBP/USD is 1.6240 and on GBP/EUR 1.0750.

Today is the last installment of the oil company purchase of GBP from USD- the company has needed to turn USD into sterling in order to pay shareholder dividends and this could offer GBP/USD some support for today.

This morning we have seen data from Germany come in weaker than expected. The November consumer sentiment indicator has come in down at 4.0 against forecasts of 4.5. The decline is symptomatic of growing concerns within the German labour market. EUR/USD is relatively untouched on the news and is holding above 1.50 for now and Thursdays German unemployment data will now be closely scrutinized. If unemployment begins to rise again then the current strength of the euro in particular against the USD will raise concern- this is maybe why there is little follow through in the rally above 1.50. On the other side of the coin an article in the Financial news- which is affiliated with China’s central bank calls for China to increase its reserve holdings of euros and yen and USD holdings should be reduced.

In other news Australian Producer Prices came in weaker than expected at 0.1% against the forecast of 0.3%- this news suggests that tomorrows CPI data may be also weaker and this will alleviate the need for the RBA to raise interest rates quickly to curb inflation- this could soften the AUD strength witnessed recently.

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