By TraderVox.com
Tradervox (Dublin) – The Office of National Statistics reported last week that the Gross domestic product for UK had fallen 0.3 percent dropping more than the market estimate of 0.2 percent drop. This led the pound to fall for the fourth week in a row against the dollar as investors choose the greenback over the pound as the best safe haven option. Safe haven demand has increased in the market due to the continued crisis in euro zone. The nation’s ten-year gilts also dropped two basis points after the report was released last week.
The GDP report from the Office of National Statistics have also increased speculations that the Bank of England will embark on its quantitative easing program to take the economy back on the recovery path. The BOE is also facing investigations into its recovery strategies as lawmakers are not convinced that the bank’s president took the right action. Some analysts have taken the first quarter GDP results as an indication of weakness in the UK economy hence pushing many investors into choosing the yen and the US dollar as the best safe haven currencies in the market at the moment. Further weaknesses in the UK economy were also evident from the construction output report, which showed that the construction in the country fell by 4.8 percent, the most in 3 years. The market was expecting a drop of 3 percent.
The Europe’s debt crisis has been established as the biggest threat to the UK’s financial stability. Leaders in UK have urged the euro zone leaders to come up with appropriate measures to curb the current crisis as it is hurting the UK exports –forty percent of the UK’s exports go to the euro zone countries hence any problem in the region is set to disrupt recovery measures in the country. There are fears that the current advance of the pound against the euro will hurt exports. However, the lower-than expected GDP results led the pound to drop to $1.5639 which is the lowest since March.
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