Pound volatile as retail sales offset GDP decline

04-24-2009 14:22

The Sterling has seen volatile price action following frustrating results concerning the UK GDP and retail sales reports as it dropped to 1.4600 before finding support. The Gross Domestic Product (GDP) declined by 1.9%; the third consecutive quarter of declines and the largest since 1979. The service sector covers 70% of the GDP and contracted by 1.2%, while manufacturing production dropped by 6.2%. Retail sales were expected to fall by 0.3% but rose by 0.3% and reduced the gloomy outlook.

Largest drop in manufacturing production since 1948

Apparel sales dropped in February by 4% but increased by 1.5% in March, which proved the increase in purchases in the UK. However, demand for its exports continues to fall and improving internal demand will boost economic growth en will be a positive sign. The initial quarter drop in manufacturing production was the largest since 1948 and could continue its weakness during the rest of this year. Improving risk appetite sent the GBP/ USD above the 20-Day SMA at 1.4687 but mixed figures pulled the pair below the technical level which may supply resistance today.

Effects stimulus plans and additional easing provide optimism

The Euro rose to a 1.3273 level as a result of the current risk appetite and due to a rebound in German business sentiment. The German IFO survey of more than 7.000 executives went up from 82.2 to 83.7 and exceeded expectations of 82.3. The optimism was caused by the effects of the government’s stimulus plans and a result of additional easing by the European Central Bank. The figures followed yesterday’s improvement in the Purchasing Managers' Index (PMI) and industrial new order data which also exceeded prospects. Nevertheless, the downside risk for the pair could increase if price action drops below the 100-Day SMA at 1.3217.

European indices continue to trade higher

The prospects for global demand decreased while the Greenback once again found support due to the weak UK growth data. Bullish momentum in the stock markets pressured the Dollar. European equity markets continue to rise, building on yesterday’s gains during the US trading session. Nevertheless, the US durable goods reports are expected to drop by 1.5% in March, while it unexpectedly rose by 3.5% in February. Today, the methodology for the banks stress test will be published and reduced volatility could be ahead of the report. The tools used by the administration to determine the vitality of banks will be examined until the definite results are published in early May. Analysts will speculate on which banks may not meet the standards.