Weak Italian GDP Data Could Send GBP EUR Exchange Rate Higher

Published: Tuesday, 11 September 2012 09:00 BST - Written by Ben Hughes

STORY LINK Weak Italian GDP Data Could Send GBP EUR Exchange Rate Higher

One key piece of information appears to have been lost in the euphoria which surrounded ECB President Mario Draghi’s announcement of last Thursday that his Bank would be committing ‘unlimited’ funds to its latest bond purchase scheme – that fact is that the real economy in the eurozone is starting to sag under the pressure of the extensive austerity measures which the region’s authorities have enforced in recent times.

Yesterday’s session provided further tangible evidence of this in the form of the finalised version of Italy’s Q2 GDP growth numbers. The data disappointed analysts by revealing that Italy’s economic malaise is deeper than had previously been supposed. Economic activity in the troubled state contracted by 0.8% in the three months to the end of June – more than the 0.7% which had previously been estimated.

The euro still managed to move forwards against most of the other major currencies on the day, with the GBP EUR exchange rate briefly trading below the benchmark 1.2500 level for the first time in several months. However, if coming sessions bring the release of further gloomy economic data from the euroland, then the lustre which Draghi’s announcement of last week has afforded the single currency may gradually wear off.

Elsewhere, last night’s Asian session saw the release of stronger-than-anticipated Chinese ‘New Loans’ data. The figure shows that domestic demand remains relatively strong, providing some reason for optimism for investors holding Yuan-denominated assets, following the grim Chinese export data at the start of the week. If the New Loans number serves to boost investor sentiment in the Far East, then expect the safe-haven Yen to suffer, along with the US Dollar.

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