Yesterday the pound experienced some significant gains across a full range of currency pairs. The first boost came early in the morning as the data from the Office of National Statistics confirmed GDP growth of 0.3%, slightly below the 0.4% forecasted.
Although growth in the UK now is at its slowest in almost a decade, the UK has avoided falling into a recession. The numbers showed year on year growth in the three months to the end of September slowed to 1% from 1.3% in the second quarter, with July highlighted as the stand out month for the quarter with 0.3% growth before contracting in August to 0.2% and 0.1% in September, pointing to a lack of momentum heading to fourth and final quarter of 2019.
Ruth Gregory, senior UK economist at Capital Economics, said that while the economy avoided a recession in the third quarter, the economy was "pretty soft". "The GDP figures suggest that the economy failed to regain much momentum after the second-quarter contraction."
Though the pound experienced some gains from ONS report, the biggest move of the day was caused by a political announcement when Nigel Farage confirmed his Brexit party will not stand for election in the 317 seats won by the Tories in 2017, but will continue to stand for election elsewhere. The Brexit Party Leader said his party would focus its efforts on trying to take seats held by the main opposition party, Labour, accusing them of “betraying” its leave-supporting voters. The news boosted market confidence that ultimately the Tories will succeed in next month’s election vote with Boris Johnson gaining a big enough majority to push through his Brexit deal. This news helped the pound reach a 7-month high against the euro to 1.1681.
With no Eurozone data released on Monday it was a quiet day for the markets there. However, there were standout comments from European Central Bank (ECB) member Yves Mersch in Luxembourg. Since the beginning of this year, euro area growth momentum has slowed markedly, by more than we had previously anticipated. The September ECB staff projections expect the euro area economy to grow by just 1.1% in 2019, 0.6 percentage points less than estimated in the December 2018 staff projections, and by 1.2% in 2020, down by 0.5 percentage points from the December projections.
These comments from the ECB again show the continued concerns by the central bank’s members, and problems the new appointed governor Christine Lagarde will have to address. This could lead to more stimulus action, potentially restricting gains in the single currency.
US trading markets were closed on Monday for Veterans Day, so there was no new data from the US to influence the US dollars value. The positive news from the UK came from the GDP data released yesterday, with the UK avoiding a recession.
The Tory party gained a boast ahead of the election from The Brexit party, which saw the pound reach a high of 1.2897 after being at 1.2778 earlier in the day. Over the weekend UniCredit’s Erik Nielsen spoke to Bloomberg news and commented that the US Federal Reserve has been holding back policy changes.
Despite two interest rate cuts this year, Erik predicted that the Fed will cut rates gradually but slowly three or four times to cushion a slowdown, while rating a possible recession as 50/50 late next year or early 2021.
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