Buoyed would be an understatement. Positive sentiment in the UK economy reached its highest level in over a year yesterday following the release of UK GDP figures. Whilst politicians argued whether or not the statistics were a true reflection of the current state of the economy or merely a momentary positive blip caused by the Olympics, with even some believing the results were simply a total fabrication, the markets had no such reservations. The Pound has now gained 0.7 percent this week and is on target for a weekly advance against the dollar, its first in five weeks. Gains today however may be limited as the market waits for the release of the official US GDP figures due out at 13:30. If recent results are anything to go by it is more than likely that President Obama could be in for further welcomed news with GDP potentially hitting 2.0%, surpassing expectations of 1.9%. This would give the president a welcomed and much needed boost as he and presidential competitor Mitt Romney draw ever closer in the polls.
The Euro declined yesterday against both Sterling and the Dollar and the situation does not look any rosier this morning. Spain’s staggeringly high unemployment levels continue as one in four people of working age are now unemployed in Spain. Official Spanish unemployment figures were released this morning at 25%, levels that haven’t been seen since the Country was under dictatorship four decades ago. What will be even more depressing for Spanish Prime Minister Mariano Rajoy, whilst he continues to delay his countries request for an inevitable bailout, is that the situation is only likely to get worse. As the country embarks upon the deepest cuts in its history, belt tightening and the predicted continuing contraction of the Spanish market, is only going to exacerbate the problem.
Furthermore, as has now become the norm since the Eurozone crisis began – Greece’s problems continue. An IMF report showed yesterday that Greece will miss target debt levels in 2020, at which point the country’s debt is now expected to reach 136% of GDP, missing the target of 120%. However this is unlikely to be of immediate concern to Greek Prime Minister Antoine Samaras whose main concern is keeping his country afloat in the short term. In order to ensure this, he is reliant on the Troika granting Greece a two year extension on its primary surplus target. However disagreement within the Greek coalition with regards to particular labour market reforms, which the Troika will likely make compulsory upon granting any such extension, is unsettling the markets.
As a result of this we could see the Euro fall today against Sterling, which is still high off the expectation beating GDP figures released yesterday, and lose ground against the Dollar as the potential 2% US GDP figure expected this afternoon is likely to give the Dollar a boost.