Currency news - GDP revision undermines dollar

GDP revision undermines dollar - 22-08-08

Wider dollar weakness pushed Sterling towards the 1.88 level against the US currency on Thursday with little change against the Euro. Markets will still be expecting the Bank of England to cut interest rates as soon as there is any relief on inflation grounds and Sterling was subjected to renewed selling on Friday with a retreat back below the 1.87 level against the US currency.

UK second-quarter GDP was revised down to 0.0% from an original estimate of 0.2% as private consumption estimates were revised down. The data will further undermine confidence in the economy and currency and will certainly reinforce recession fears, especially as the estimates for services growth were also lower than expected in the three months to June. In response, Sterling weakened further to below 1.86 against the dollar and to near 0.7980 against the Euro.

European recession fears will continue to provide some degree of Sterling protection in the short term, but wider UK confidence will remain weaker given the economic stresses.

Tim Clayton
Investica Ltd
E-mail: tim.clayton@investica.co.uk
+44 (0) 1452 781001

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