Yesterday’s UK 2018 Q4 GDP reading gave sterling bears a reason to have faith in their convictions. Growth in the fourth quarter slowed significantly, down to 0.2% from 0.6% in the previous quarter. 2018 was a bad year for business investment with Brexit uncertainty creating 4 consecutive quarters of declining investment. It was also a year which recorded the lowest growth rate since the 2009 financial crisis. This weak data follows on from the Bank of England’s decision last week to chop the UK growth outlook for 2019 from 1.7% to 1.2% – a whole 0.5% cut – a significant amount by any means. Sterling’s reaction was indeed negative to this release, the pound broke below $1.29 against the buck and settled the day around the $1.2850 mark. GBPEUR saw a move lower, albeit by a smaller degree, settling the day around the €1.14 level.
The US dollar is stealing many of the recent headlines across financial markets. Yesterday it put in its 8th consecutive day of gains. It’s managed to increase its value each day since the 30th January Fed announcement, where Powell insisted the central bank were going to take a patient approach. This dovish message appears to have had the opposite effect. However, looking outside of the dollar, a good reason for its strength comes from the fact the alternatives are even worse. A euro dogged by a region which is slowing notably – most concerning – the decline in Germany’s economic strength. Alternatively, a pound plagued by politics. Enough said. Finally, the Japanese yen, where the central bank has printed so much money it nearly owns 30% of the domestic stock market yet still can’t stimulate growth or inflation. Clients who are exposed to the greenback on the purchasing side should take these into consideration.
Written by Viv Savani. 8:29am, February 12th 2019
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