Pound Plummets As Growth Stalls, Euro Follows Suit

Previous Articles

• Aug 22 - Pound Plummets As Growth Stalls, Euro Follows Suit
  
• Aug 22 - Euro Open: UK Gross Domestic Product to Print at 15-Year Low
  
• Aug 21 - Forex Emerging Markets Weekly - August 21, 2008
  
• Aug 21 - Forex Trading Forecast: US Dollar to Weaken Before Further Rallies
  
• Aug 21 - Euro Open: Will Switzerland Follow the EU into Recession?
  
• Aug 21 - Pound Reverses Despite U.K. Retail Sales Rebound, Euro Heavy As PMI Remains In Contraction
  
• Aug 20 - Can Chinese Demand Keep Japan Out of Recession?
  
• Aug 20 - Dollar May Drop Without Action From The Fed
  
• Aug 20 - Australian Dollar Could Fall Like a Rock
  
• Aug 20 - BoE Voted 7-1-1 to Leave Rates Unchanged, Besley Votes For Hike.
  
• Aug 20 - Euro Open: Is The Bank of England Closer to Cutting Interest Rates?
  
• Aug 19 - Forex Seasonality Update: We Forecast USDCAD Declines
  
• Aug 19 - Euro Falls As German ZEW Shows Current Conditions Worsening
  
• Aug 19 - A Drop in U.S. Housing Starts Would Validate EURUSD Technical Outlook
  
• Aug 19 - Euro Open: Will Producer Prices Help the ECB Cut Interest Rates?
  
• Aug 18 - Japanese Yen Forecast Ahead of BoJ Meeting
  
• Aug 15 - Forex Trading Weekly Forecast 08.18.08
  
• Aug 15 - Carry Trade Plunges, But Yen Pairs Testing Support
  
• Aug 15 - US Consumer Confidence Improves For Second Consecutive Month, Dollar Gains
  
• Aug 15 - Forex Emerging Markets Weekly - August 15, 2008
  

Written by John Rivera, Currency Analyst

The pound reversed yesterday's gains after the second reading for 2Q GDP was flat. After reaching as high as 1.8797 during the U.S. session the sterling dropped over two hundred points to 1.8573. Growth in the U.K. was unexpectedly revised lower to 0.0% from the first reading of 1.5%.

Talking Points   
•    Japanese Yen: USDJPY Climbs Back Above 109
•    Euro:  Current: Account Deficit Widens
•    British Pound: Second Quarter Growth Stagnates
•    US Dollar: Bernanke To Speak Today

Pound Plummets As Growth Stalls, Euro Follows Suit

The pound reversed yesterday's gains after the second reading for 2Q GDP was flat. After reaching as high as 1.8797 during the U.S. session the sterling dropped over two hundred points to 1.8573. Growth in the U.K. was unexpectedly revised lower to 0.0% from the first reading of 1.5%. Rising inflation has sapped consumer's purchasing power leading to a 0.1% decline in personal consumption and a 1.4% fall in imports. A 0.5% drop in exports and services remaining at 0.2%-the weakest since 2002 contributed to growth stalling. 

The lack of growth from the service industry which accounts for three-quarters has put the U.K. economy at the door step of a recession. The decline in the manufacturing sector continues to worsen as July's PMI reading was the third straight month that it contracted and lowest on record. Although retail sales rebounded 0.8% in July, inflation at 4.4% and rising and a labor market which has lost over 40,000 jobs the past two months combined will weigh on consumer spending going forward. The dour growth story for the U.K. may force the BoE to put aside their concerns about inflation and take measures to foster growth.

The Euro gave back some of its gains from yesterday as well, after the June's current account reading showed the deficit widening to 8.2 billion from a revised -5.5 billion the month prior. Pound selling and the industrial new orders report showing the biggest drop in six years also weighed on the currency. Although manufacturing demand declined 7.4% on an annualized basis, June's 0.3% decline was better than the -1.5% that was expected.

The major event risk for the U.S. dollar today other than oil prices is the scheduled speech today at 10:00AM EST by Fed Chairman Ben Bernanke at Jackson Hole, Wyoming. As DailyFX analyst Terri Belkas commented yesterday, "Given the uncertainty surrounding the health of US financial institutions, commentary on the financial markets will be watched closely and bearish sentiment by Mr. Bernanke could weigh heavily on risk-appetite." If the chairman's testimony proves uneventful the current easing of oil prices following yesterday's jump on geopolitical concerns could add to dollar strength.