By TraderVox.com
Tradervox.com (Dublin) – Speculation Bank of England will expand its stimulus program again rose after UK’s Gross Domestic Product shrunk more than the market was expecting. On announcement, the pound fell to its weakest in six months against the euro as investor searched for safety. The report also resulted to a decline in two-year gilt yields to a new low. Another report from the Confederation of British Industry indicated the UK manufacturing confidence dropped in July pushing the sterling pound lower against most of its major trading peers.
Nick Parsons, who is the head of research for Europe and UK at National Australia Bank Ltd, said that despite the market being prepared for a poor number in UK GDP, the data was dreadful. He predicted that there will be more interest rates cut before the end of this year and confirmed the need for more quantitative easing. The UK GDP shrunk by 0.7 percent from its previous reading when it shrunk by 0.3 percent according to the Office for National Statistics report. The market was expecting a decline of 0.2 percent. According to CBI, the gauge of factory optimism showed a decline to negative 6 from a reading of 22 in April while the hiring intentions dropped from 16 to minus 2, which is the lowest reading since October.
The sterling pound which dropped by 0.4 percent last week, dipped 0.7 percent against the euro to trade at 78.35 pence per euro at the close of day in London yesterday. The currency had earlier fallen by 1 percent during intraday trading. Against the dollar the sterling lost 0.3 percent against the dollar to trade at $1.5467. The greenback gained 0.9 percent last week while the yen climbed 1.7 percent.
Valentin Marinov who is the head of Group of 10 Foreign Exchange strategy in London at Citigroup Inc said that the poor UK data will continue to weaken the sterling pound. He noted that the reason investors were buying UK’s gilts was because of its AAA rating and since this has been reviewed downwards, the sterling is in a precarious position.
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