Yellen Dominates Headlines

James Baxter Senior Currency Broker Yellen Dominates HeadlinesJames Baxter
Senior Currency Broker
T: 01442 892 062
E: [email][email protected][/email]

It was a fairly quiet day for sterling yesterday with no significant data releases to report. The pound made gradual gains against the euro over the course of the day before tailing off before the close of European markets. It was a similar story for GBP/USD, with sterling rising against the dollar before dropping back down again after Janet Yellen’s speech across the pond. The graphs below show GBP/EUR and GBP/USD movement over the last 24 hours.

GBP/EUR 24 hour graph

GBP/EUR 24 hour graph

GBP/USD 24 hour graph

GBP/USD 24 hour graph

The only piece of data to note from the UK yesterday was the release of the GDP estimate for the three months to January by the National Institute for Economic and Social Research. The figure showed that economic growth had slowed over the three month period, growing at a quarterly rate of 0.4%, down from 0.5% posted for the previous quarter. Of much less significance, we also saw the release of industrial output figures for December earlier in the day, showing the sharpest monthly drop in over three years. The figures had very little effect on the pound and sterling actually rose against both the euro and the dollar in early trade yesterday.

“The softening of growth in the three months to January was primarily driven by weakness in the production sector at the end of last year,” NIESR researcher James Warren said.

“Despite our estimates indicating a subdued start … we do expect the economy to grow by 2.3 percent this year, primarily driven by consumer spending. However, negative contributions from net trade are expected to weigh heavily,” he added.

Across the pond, Janet Yellen delivered her Semi-Annual Monetary Policy Report to the Congress yesterday. In a lengthy speech, Yellen highlighted the economic headwinds faced by the US, ultimately pouring cold water on speculation that the Federal Reserve would raise interest rates again in the next few months, warning that US financial conditions had deteriorated, becoming ‘less supportive’ of growth.

“Financial conditions in the United States have recently become less supportive of growth, with declines in broad measures of equity prices, higher borrowing rates for riskier borrowers and a further appreciation of the dollar.

“Against this backdrop, the [Federal Reserve] Committee expects that with gradual adjustments in the stance of monetary policy, economic activity will expand at a moderate pace in coming years and that labour market indicators will continue to strengthen.”

Bizarrely, Yellen’s comments had a positive effect on the dollar, forcing GBP/USD back down after the pound had initially made decent gains against the US currency yesterday. The Federal Reserve had raised interest rates by 0.25% in December, the first of the Western economies to begin tightening policy. However, since then, global economic conditions have deteriorated as growth in China slows, stock markets remain volatile and commodities prices continue to fall, with Yellen adding that the uncertainty had been intensified.

With this in mind, it is more important than ever to stay in touch with your expert broker at the Foremost Currency Group. If you don’t already have an account with Foremost Currency Group, you can register for one for free, without obligation, by following this link.

James Baxter
Senior Currency Broker
T: 01442 892 062
E: [email][email protected][/email]