Poor UK GDP figures sees sterling lose gains

Tom Tong29/Mar/2012Currency Updates


Following a fairly successful day of trading on Tuesday we saw Sterling hit a two-week low against the euro and fall versus the dollar yesterday. The pound came under pressure following data that unexpectedly showed the UK economy had contracted more than previously thought in the fourth quarter of 2011. Last year saw UK gross domestic product contract by 0.3 percent between October and December, with annual growth at 0.5 percent, against expectations for an unrevised 0.2 percent fall on the quarter and 0.7 percent growth year-on-year. This outcome highlights what Bank of England Governor Mervyn King said earlier in the week that Britain faces a long road back to pre-crisis economic growth rates as banks are still reducing their balance sheets.


Although relevant gains against the pound were made due to poor GDP figures coming from the UK, the Euro fell significantly versus the Greenback. Negative news coming from the Eurozone can be largely accountable for the single currencies slump on Wednesday. Confirmation from the Spanish economy minister that Q1 growth will be negative, following a negative Q4 of 2011 has helped pressure the EUR/USD to session lows and force Spanish stocks down 2% on the day. Traders are worried that if Spain falls into financial trouble, bigger economies such as Italy could follow which has largely increased risk aversion.


With U.S. durable goods orders rising last month the Dollar enjoyed gains against most of its major counterparts especially the pound due to poor UK data being released. The American government announced yesterday that orders for durable goods rose 2.2 percent in February after orders fell in January. This a sign that the U.S. economy is becoming stronger. Traders contributed to the strengthening of the Dollar by moving away from the Euro amid concerns about Europe’s ongoing debt crisis.


Written by Tom Tong

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