Special FX Report – UK and US Q4 GDP will be released Friday
Here are the latest Financial News:
UK GDP
Recent UK economic data has been mixed with the jobs claimant count posting an unexpected rise last month and mortgage lending declined to its lowest level since last July. These reports generate uncertainty about the strength of the UK recovery and have prompted a number of BOE officials including the BOE Governor King to state that quantitative ease may be extended if needed. GBP has been underperforming pressured by speculation that the BOE may be forced to expand quantitative ease. As the UK economy appears to be struggling UK inflation has been rising with January inflation approaching the high end of the BOE’s inflation target range. UK January was reported to have risen by 2.9%. Slowing of the UK recovery and the rise of UK inflation complicates the outlook for BOE policy. The BOE’s Tucker said that the BOE must monitor the rise in inflation and he warned that if stimulus is withdrawn to slowly it could increase the risk of inflation in the UK. On Friday February 26th UK revised Q4 GDP will be released. This report will be key to investor perception of the strength of the UK recovery and the outlook for BOE policy. The initial UK Q4 GDP release showed that the UK economy barely pulled out of recession with Q4 GDP reported to have risen by just 0.1%. The trade had expected UK Q4 GDP to have risen by 0.4%. Improvement in the GDP report was primarily fueled by a modest gain in the service sector along with improvements in auto and retail sales. UK GDP growth is constricted by continued tight credit market conditions, weak labor market and high household debt. The revised UK Q4 GDP is expected to come in slightly better at 0.2%. An upward revision in UK GDP could help to slow the rate of the GBP decline and dampen fears that the BOE will soon expand quantitative ease.US GDP
Recent US economic has been disappointing with consumer confidence posting a sharp decline, jobless claims rising more than expected and January new home sales declined by a record 11.2% in January. US consumer confidence fell to a 10 month low in February and nonfarm payrolls growth has yet to turn positive. These reports generate concern that the sharp improvement in US Q4 GDP growth may not be sustainable as high unemployment and tight credit conditions limit US consumer demand. US Q4 GDP was reported at 5.7%. The Q4 GDP report helped to fuel speculation that the US economy is growing faster than expected and that the recovery will be stronger. Most of the Q4 growth was due to inventory rebuilding and the impact of government spending and incentive plans like the cash for clunkers, tax credit for first-time homebuyers. The restocking of inventories added 3.39 points to Q4 GDP. Without the rebuilding of inventory the US economy grew by just 2.3% in the fourth quarter. Consumer spending however slowed in Q4. 70% of US GDP is made up of consumer spending. Consumer spending is needed to fuel GDP growth along with private investment spending. The Fed raised the discount rate 25bps points to 0.75% last week. There is uncertainty about whether the discount rate hike sets the stage for earlier tightening by the Fed. US Q4 preliminary GDP will be released on Friday, February 26th. Analysts are split on whether the Q4 GDP will be revised down slightly because of weaker consumer spending or revised slightly higher supported by the adjustment of low inventories. In testimony before Congress on Wednesday Fed Chairman Bernanke said that the US recovery is not yet self-sustaining and that interest rates will remain low for extended. Any change in Fed policy will be determined by economic data. The timing of the Fed’s withdrawal of stimulus will be key to US GDP outlook. The GDP report will be key to the Fed’s policy outlook. The consensus is the US Q4 GDP will be revised to 5.6%. This would confirm the strongest US quarterly GDP growth in over three years and the report may fuel Fed rate hike speculation.
Source: Easy Forex
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