The pound dropped across the board this morning ahead of the preliminary estimate of first quarter GDP scheduled for 9:30. UK gross domestic product (GDP) is expected to expand by 0.5% in the first three months of the year after contracting by –0.5% in the fourth quarter of 2010. Market participants will be extremely cautious of the preliminary first quarter reading as recent industrial production, retail sales data and number of business surveys have all been extraordinary weak. In addition, Bank of England officials are also going to pay close attention to the GDP reading as they intend to assess the precise timing for the future interest rate hike. Recent negative economic data prompted traders to take their bets off the table that UK interest rates will rise from 0.5% in the first half of the year. Expect for the pound to strengthen against the euro should we see the evidence of economic recovery.
The dollar dropped against the euro during the overnight trade on speculation the Federal Reserve will continue with its loose fiscal policy. It is widely expected for the Fed to leave its base rate unchanged at 0.25% and to remain its 600 billion dollars asset purchase program unchanged in order to support the US economy. Expect for the greenback to remain under pressure against its peers as it looks like the Fed is not going to signal shift in its policy at this meeting.
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