Rational FX: UK GDP figures came much worse than expected yesterday [26/01/2011]

The main news to hit the market yesterday was the UK GDP figure which came in substantially worse than expected. This saw GBP nose dive early on. This has given many investors reason to sell off sterling as it shows a contraction in the last quarter shortly after the new government’s austerity measures were put in place.  The government was quick to blame it on the “harshest” December on record, however clearly investors thought it were more than just that.

Public sector net borrowing came in better than expected however this had little effect on the market as investors found it hard to swallow the pill of the awful GDP figure. This is however positive for the UK as it helps reduce our deficit.

US consumer confidence came in better than expected at 60.6 a substantial increase from the previous month. This will help to stimulate the US economy and we may even start to hear talk and speculation of the Fed raising their interest rates.

The first piece of information today will be the BOE minutes. All eyes will be on this to see whether more members of the MPC will be looking at raising interest rates along with Mr Sentance changing the current split from 1-6-1. If more are moving this way we may see GBP recover some ground after losing out after the bad GDP figure.

In the US we have the new home sales figure being released. The consensus is to see an increase from 290k to 303k. If this figure comes in strong we are likely to see more support to the currency risk appetite/ risk aversion trend in the market and we could see cable weaken off.

The final piece of data worth noting is the Fed interest rate decision which is likely to remain unchanged; this will have little effect on the market unless there is a big surprise.

There is no data out of the euro zone today.