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DailyFX European Market Wrap: Equities Flat, Pound Hits Two-Month High vs Euro

DailyFX European Market Wrap: Equities Flat, Pound Hits Two-Month High vs Euro

Katie Pilbeam, Contributor

European markets are looking pretty lack luster this Wednesday afternoon despite some positive data releases including an above expectation rise in Britain’s GDP, Lloyds Banking Group reporting its highest annual profit in a decade and Eurozone inflation rising.

The British economy grew faster than previously thought. The 2nd GDP estimate came in at 0.7% in the fourth quarter, above the preliminary reading of 0.6% (year-over-year, however, the reading was down from +2.2% to +2%). This uptick is due to the manufacturing industry performing better than first thought.

In response Sterling rose to its highest level in two months against a weak euro. The pound gained slightly on the GDP release while the euro weakened as German 2-year bond yields hit a record low of minus 0.91%, making the single currency less attractive against higher yielding currencies including sterling and the US dollar.

Lloyds Banking Group reported a huge increase in profit before tax. The bank, which was bailed out by the British taxpayer at the height of the financial crisis – said profits rose by 158% to £4.2bn in 2016 compared to £1.6bn the year before. The bank said its performance was "inextricably linked to the health of the UK economy, which has been more resilient than the market expected post referendum".

Euro zone inflation rose to an annual rate of 1.8 percent in January, in line with the first estimate. The rise of annual inflation was mostly driven by energy prices which increased by 8.1 percent in January year-on-year, jumping from a 2.6 percent annualized increase in December.

Looking ahead to Thursday there’s Australia’s fourth quarter capital expenditure due, Germany’s fourth quarter GDP and the GFK reading as well as France’s business confidence and Britain’s fourth quarter business investment report.

--- Written by Katie Pilbeam, DailyFX

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.