It's the big one; today sees the release of the US economic growth
data for the last quarter of 2010. As we all remember, the UK data was
blighted by bad weather but most calculations suggest that even
without the snow and ice, the UK economy hardly grew at all in the
last three months of the year. Nevertheless, an economy that shrinks
by 0.5% while inflation rises to 3.7% is struggling and, according to
the Governor of the Bank of England, inflation could rise to 5% in the
year ahead so things aren't set to improve in the immediate future.
That certainly explains Sterling's poor performance over the past
week which wasn't helped by the sharp drop in consumer confidence as
reported overnight. This was the worst reading in over a year and the
largest one month drop since 1994. Who can blame beleaguered consumers
when all the data they see is doom and gloom. This is all great news
for Sterling buyers but a bit of a pain in the neck for sellers. David
Cameron is in Davos for the World Economic Forum and he is expected to
confirm his belief that the UK is starting to make progress and that
retaining Britain's top level credit rating has saved the UK masses
of money in lower interest payments. I have no doubt that he is right
but those with a better grasp of economics than I will be quantifying
that gain against other costs as I write.
But back to the US Dollar; it must be remembered that the US also had
a period of poor weather through December so those who forecast a
figure of 3.5% growth in Q4 may want to revise their figure down but
we are still expecting a much more attractive piece of data than the
report we saw from the UK. The US data is calculated slightly
differently to the UK figure so we can't compare like for like
exactly but we are expecting a more positive report from America
nonetheless. The US Dollar which has been rather poorly supported in
the last week may well find its feet today if the report is a good
one. I think traders will largely ignore the International Monetary
Fund chastising the US, Japan and Brazil for not tightening their
belts soon enough if the economy is seen to be growing. Many in the
markets are forecasting a rather dramatic response to the US data and
a positive one at that. We shall see at 1.30 UK time when the figure
is announced.
Japan's credit rating was cut by one of the agencies last night and
that has weakened the Yen slightly. The movement was only slight
because the downgrade was due to large scale debt and little cohesive
action to reduce it. That is not new news so traders were a tad
underwhelmed by the announcement.
Elsewhere the Euro appears to have run out of steam as traders lose
the confidence that it will press ahead above $1.36. As has been the
case over the last year, just as traders start to get enthusiastic
about the Euro, they pinch themselves and realise that the Eurozone is
in deep mire and it is impossible to gloss over such fundamental
problems. Many well respected commentators still think the Euro
project is doomed but no one is quite sure what catalyst or disaster
will be the coup de grace. However, we pretty well know we should be
looking along the North Mediterranean coast or across the Irish Sea
for clues. Or perhaps it will be Germany which finally says aufidersen
to the rest of the Eurozone economies and there are many Germans who
would love to have Deutschemarks back in their pockets and EU debt off
their backs.
Farther afield, the Australian Dollar remains weak after Treasury
minister; Wayne Swan outlined more details of the impact of the
Queensland Floods. Queensland contributes 19% to the Australian
economy so the loss of billions of Dollars worth of coal production
and a whole season's worth of agricultural output will have a medium
term effect on the Australian economy. He has already calculated that
it will wipe 0.5% off Australian economic growth and most of that
effect will be seen in the first quarter of the year. So be ready for
Aussie Dollar weakness around the release of the Q1 GDP figure in
April. However, Mr Swan is more optimistic in the longer term and that
should reassure the longer term traders out there.
And finally, former Miss Canada finalist, Mary-Lu Zahalan-Kennedy, is
the first student to graduate with a degree in Beatles Studies.
Mary-Lu knows all about the music, the people and the studio sound
that the Beatles achieved. Quite what that qualifies her for is not
clear and I would guess few English Students would want to spend
thirty grand on the course but well done Mary-Lu. I just hope it is
more a case of I feel fine than Get Back to where you once belonged.
And just remember, love is all you need.
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Source: Fxstreet.com
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