U.K. Growth Dissapoints, As German Business Confidence Reaches 18 month High

Fundamental Headlines

• S&P Gives Japan Negative Rating – Wall Street Journal
• U.K. Creeps Out of Recession – Wall Street Journal
• China tightening fears boost havens - Financial Times
• Fed Officials Consider Adopting Interest on Reserves as New Benchmark Rate – Bloomberg
• Bank of China, Construction Bank Restrict Loans as Regulator Cracks Down - Bloomberg



GBP/USD – The U.K. recession came to an end in the fourth quarter as GDP grew by 0.1%, ending the longest contraction on record. However, growth failed to meet expectations of 0.4% signaling that the economy remains on fragile ground. Increased government spending and an increase in services which accounts for 75% of GDP led the way. A 1.9% rise in distribution reflects the increase in activity as companies continue to replenish their depleted inventory levels. However, consumers remain cautious as evidenced by the 2.4% decline in recreation. The BoE is widely expected to bring an end to their asset purchase program at their February policy meeting, but the prospect of a rate hike will dim on the disappointing growth figures.   To discuss this and other topics, please visit the GBP/USD Forum.

EUR/USD –  German business confidence rose to an 18-month high of 95.8 from 94.6 in December on the back of strong foreign demand. The building optimism could lead to increased hiring and a return of domestic growth which may ease fears that the recovery will wither absent government spending. A strengthening labor market will be the next sign of a sustainable recovery and the potential for rising in inflation. The ECB views wage inflation as the biggest threat  to price stability and may look to raise rates in order to limit upside potential. Despite the German economy accounting for 20% of the European Union policy makers may remain cautious as other members such as Greece and Spain continue to struggle. To discuss this and other topics, please visit the EUR/USD Forum.