Daily Insight

Following on from last week, the outlook for the Pound deteriorates almost by the day as the UK currency continued to slide against most of the 16 most actively traded currencies following reports that UK economic growth unexpectedly slowed.

Gross domestic product rose 0.7% in the third quarter, which fell slightly below initial forecasts and to the weakest level in a year as growth in service industries cooled and factory production declined.

The report on Friday will only add to concerns that the UK economy is slowing but the Bank of England will have to balance slower growth against record high commodity prices, which will only add to the persistent inflationary pressures.

Therefore, the Pound may struggle to make gains in the build up the December rate announcement where speculation is building that the monetary policy committee will cut interest rates by 25 basis points.

The Bank's quarterly inflation report seemed to suggest that a reduction in the benchmark lending rate would be necessary to spur growth as the impact from the U.S subprime mortgage crisis limits access to credit.

The Euro has appreciated 12% against the Dollar this year and continued to make robust gains against the U.S currency last while also rising to the highest level in 4-years versus the Pound as the ECB adopt a staunchly hawkish stance in the face of slowing growth.

However, towards the end of the week, the Euro failed to hold on to those gains and struggled to sustain the upside momentum against the Dollar amid a host of surprisingly poor economic fundamentals.

European manufacturing expanded at a moderate pace in October while growth in service industries stalled and French consumer spending declined by the most in over a year.

The overwhelming strength of the Euro has been offset with persistent inflationary concerns as oil prices continue to flirt with $100 a barrel.

Therefore, the ECB's governing council must balance the renewed risks to price stability against the possibility of slowing economic growth and that may prompt the Central Bank to alter their staunchly hawkish monetary stance over the coming months.

No Data Released 26th November

written by Adam Solomon