US GDP figures were released today and made for uninspiring reading, causing the markets to shake as a result. The US economy grew by 1.9% in the first three months of 2012, down from the predicted 2.2%. The US economy is often seen as a barometer for global economic strength, therefore meaning investors will have a higher risk appetite if they feel US economic data is improving. Similarly, when US data is poor investors will shy away from the riskier currencies, such as ZAR, NZD and AUD and move their money back to the USD. This is because it is seen as a ‘safe haven’ currency, due to the fact it holds its value in times of global economic unrest.
The results of the US GDP figures seem to have caused some concern within the markets, as the Dollar has strengthened significantly against both GBP (1.5405) and the EUR (1.2359). The prediction is for growth to improve in the US for the remainder of 2012 at approximately 2.5%. This could give the global markets a boost, as investors will see the upturn in the US economy as a reason to be hopeful that this strength, will be mirrored in the global markets.
Personally I feel the USD will be range bound between 1.54-1.56 against GBP and 1.23-1.25 against the euro, as the markets wait for news in the build-up to the Greek elections before deciding which direction they will take next.
In Europe, the underlying issues that are weighing down the whole region do not seem to be lifting. Greece are under serious pressure to form a government, both willing and capable of instigating the ECB’s required austerity measures and Spanish bonds sales are creeping dangerously close to the 7% mark, causing major concern for EU leaders. Today European Central Bank (ECB) president Mario Draghi, informed eurozone figureheads that they must decide what they want the bloc to look like in the future, because the current set-up is ‘unsustainable’. He went on to say the ECB could not ‘fill the vacuum’ left by governments on creating growth or structural reforms. I think we will see GBP/EUR rates range bound between 1.2450-1.26 in the build-up to the Greek elections in June.
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