The British pound is foreseen to extend its losses alongside the Euro today on expectations that the Bank of England is preparing to take more aggressive action to boost the UK economy, which is teetering close to a triple-dip recession. Meanwhile, the Euro is deemed to be supported by positive signs that the German economy is rebounding quickly from a contraction in the fourth quarter.
Economic indicators have ominously pointed to the UK economy entering its third recession since 2008. The Office for National Statistics reported last week that Gross Domestic Product fell 0.3 percent in the December quarter as a North Sea oil production slump, weaker factory output and a hangover from the London Olympics dented output. Yesterday, Hometrack revealed that UK house prices stagnated in January and fell by 0.3 percent on an annual basis, painting another bleak picture of the housing market. With the harsh weather, economists are wary that the economy will enter another recession if it shrinks yet again this quarter.
With the economy at risk of entering an unprecedented triple-dip recession, the markets are increasingly speculating that Mark Carney, who takes over a chief of the Bank of England in July, will unveil new policies aimed at stimulating growth. In a newspaper interview, Carney said he was more focused on boosting growth than on tackling inflation, likely raising the odds of the central bank taking steps to increase the money supply. Speaking at the World Economic Forum over the weekend, he also said that central bankers need to be prepared to take aggressive measures to help economies achieve an “escape velocity,” likely an indication of things to come when he takes over the BOE.
In contrast, views that the Germany is gaining steam after contracting in Q4 of 2012 are seen to buoy the common currency today. The GfK Consumer Climate index is estimated to rise from 5.6 points to 5.8 points this month, suggesting that consumer activity is apt to boost growth in the current quarter. The report follows data last week which showed business sentiment climbed to its best reading since June and business activity surged to its fastest rate of growth in a year in January. Recent stabilization in the financial markets have likely translated into improving prospects for the Germany economy, suggesting that the country is once again seen to lead region in its economic recovery. Considering these, a long position is then recommended for the EUR/GBP trades.
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