Volatility is almost a certainty for the pound, with statisticians set to announce whether or not Britain fell into an unprecedented triple-dip economic recession in the first quarter. While positive numbers are forecast and may underpin a sterling rally, the currency has very little fundamental padding to absorb a disappointing release. A negative number could shatter market confidence in the pound and force the Bank of England to pull out more currency-negative monetary stops even before Mark Carney’s arrival in the summer.The G20 and recent comments from the International Monetary Fund have done enough to create more caution about the health of the global economy.
Sterling
The debate about UK economic growth and a potential triple-dip recession will peak in the days ahead before Britain publishes an initial estimate of first quarter growth, numbers that will very likely hold the key to the pound’s near-term outlook. Should the figures be considered positive by economists, it may just lay a platform for a broad sterling rally given the fact that the currency’s main rivals such as the US dollar remain pressured by on-going and heavy monetary easing by their respective central banks.
US dollar
Investors should take very little time digesting statements from the recent G20 meeting and make a start on preparations for key US first quarter growth data which should set the tone for the global growth story moving into the second quarter of this year. Although solid GDP numbers should support the US dollar’s more interest-heavy and risky rivals, it will also undoubtedly be a bullish signal for the greenback by bolstering market positions in favour of the Federal Reserve reducing the size of its stimulus programme. However, a series of disappointing US economic figures reinforced expectations of on-going Federal Reserve stimulus, pushing the US dollar down to an eight-week low against the euro before a late rebound.
Euro
Looming UK and US GDP releases should increase the markets concentration on business conditions across the eurozone, starting with flash PMI surveys covering the area’s manufacturing and services industries which may emphasise pressure building on policymakers to offer more support. The euro suffered a somewhat dramatic one-day fall after remarks from the European Central Bank’s Jens Weidmann served as a reminder that the ECB may soon be forced to sanction new monetary stimulus measures with recent economic data outlining a deeper-than expected economic recession in Europe.