httpvh://www.youtube.com/watch?v=5LpWw8Ua_io

UK GDP was confirmed at -0.5% for the 4th quarter yesterday without remaining pretty level in trade afterwards. This is a revision higher of course from the 2nd estimate that had us at -0.6%. As we can see the economy is still in a real state and indications from consumer trends are that a meteoric bounce back in Q1 is unlikely. I doubt whether this will have much effect on the decisions of the MPC come their next meeting as we are basically back to where we started in January. I do expect the Bank of England will veer on the side of caution and not raise rates at their meetings in April or May as consumer spending, business lending nor the housing market are showing any signs of a robust recovery. That uncertainty over rates is what is keeping GBP so under pressure at the moment and why currencies such as the EUR and USD are strengthening.

We are starting to see more and more hawkishness in the US as well with comments from two members of the Federal Reserve. St Louis Fed President Bullard commented that the Fed could end its $600bn QE program early while Dallas Fed chief Fisher said that if there a vote was put to him to extend the bond-buying program then he would vote against. Yields on US debt rattled higher and we saw the dollar put on weight.

The ECB are further backing themselves with more and more chatter about a rate increase at their April meeting by saying that they risk inflating another asset bubble if they do not act soon. ECB member Mersch said “We have been in an environment of very persistent low interest rates. That means there is a high risk of creating new bubbles by creating incentives for a misallocation of capital,” This comes after both Greece and Portugal were once again downgraded by S&P. It is well supported however against the US dollar and we will have to see a monetary policy surprise from one of these central banks before we can break out of these ranges.

We start to move into that end/beginning of month cycle now with the prep for Friday’s Non-Farm payrolls announcement coming today in the form of ADP. With the fall in consumer confidence in March driven by employment issues there are doubts that the payrolls announcement

Latest exchange rates at time of writing