Britain’s economy slipped back into recession after data this morning showed output contracted by 0.2 percent in the first three months of this year, a technical recession is defined as two or more consecutive quarters of economic decline. This is the first double dip since the mid 1970s. Sterling was falling in advance of the release as investors prepared for bad news and may now have further to go.
Sterling buyers will be clapping their hands as we slip from the 22month highs on GBP/EUR. However all is not doom and gloom for Euro buyers
The news of double-dip recession in the UK may have been unexpected by most, but the markets have largely shrugged it off, suggesting that it was already anticipated and priced-in.
A weak GDP number could still leave the option of more stimulus on the table, but with inflation proving to be sticky and recent retail sales data pointing to signs of a pickup in consumer demand, chances of more quantitative easing are slim.
Sterling will also be buoyed by safe-haven inflows into UK gilts as political uncertainty and growing worries about the outlook for the euro zone peripheral countries sours sentiment towards the euro. In particular the outcome of the French elections. The first round of the French presidential elections, which take place on Sunday, could be another negative for the euro. Financial markets are concerned that Socialist Francois Hollande, who looks to set to win, may keep a looser grip on the government purse-strings than current President Nicolas Sarkozy.
Meanwhile the Bank of Japan is also likely to expand its asset purchase programme later this week, while expectations are the European Central Bank will keep monetary policy loose amid a looming threat of recession in the euro zone.
Today the rate moved by roughly one cent which on a large amount could cost or save the client £1-2000. In these volatile times you need to be speaking to a dealer; discussing your options, hedging your risks or fixing a price at an opportune moment.
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