UK GDP for the first quarter came in at -4.1 (yoy) and has been hit with bad numbers all year. This has been further compounded with political issues, QE problems, a banking crisis, and a potential downgrade of its triple-A rating, yet if you look at the currency, it has been up over 16% since the bottom in mid-March. GBP/Eur is up over 8% and about 12% since the beginning of the year. The UK Green Shoots story is alive even with an economy that needs massive amounts money pumped into the system.
The same can be said for Japan which announced much worse number that UK for GDP on an annualized basis. Here usd/yen is up only 4% and has strengthened since early April. Of course, on a relative basis, Japan is in worse shape than the UK and the currency reflects it.
The currency markets seem to be discounting these first quarter numbers and looking to a revival in the economies based on the more recent survey evidence. Yet there is more than one reason for the currency gains relative to the USD. The rise in GBP could be due to expected improvement later this year, an expectation of poorer performance in the US, on a relative basis or an increase in risk appetite because the US is doing better with the rest of the global economy. Or maybe the markets have gotten ahead of itself. All are plausible stories which makes for a difficult trading period.
The same can be said for Japan which announced much worse number that UK for GDP on an annualized basis. Here usd/yen is up only 4% and has strengthened since early April. Of course, on a relative basis, Japan is in worse shape than the UK and the currency reflects it.
The currency markets seem to be discounting these first quarter numbers and looking to a revival in the economies based on the more recent survey evidence. Yet there is more than one reason for the currency gains relative to the USD. The rise in GBP could be due to expected improvement later this year, an expectation of poorer performance in the US, on a relative basis or an increase in risk appetite because the US is doing better with the rest of the global economy. Or maybe the markets have gotten ahead of itself. All are plausible stories which makes for a difficult trading period.
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