Shock US Q4 GDP Data Shows That World?s Largest Economy Shrank, Sending GBP USD Lower, GBP AUD & GBP NZD Higher

Published: Wednesday, 30 January 2013 16:00 BST - Written by Frank Davies

STORY LINK Shock US Q4 GDP Data Shows That World?s Largest Economy Shrank, Sending GBP USD Lower, GBP AUD & GBP NZD Higher

This afternoon’s US GDP data for Q4 came out at a shockingly poor annualised -0.1%. Analysts had been anticipating a drop-off from Q3’s decent showing of 3.1%, with a 1.1% print expected, so the extent of the slowdown in the world’s premier economy came as a body blow to investors holding US Dollars.

The knee-jerk reaction from market participants saw the Greenback sold off due to deep concerns regarding the structural problems which America’s economy is facing. However, as the dust settled following the announcement, which came at 1330hrs GMT, the Buck was supported as institutional investors shifted their funds into the safe-haven of the US T-bill in anticipation of stormy waters ahead for the global economy.

The news from the States saw appetite for risk drain from the market, causing a major forward move for the Pound Australian Dollar and Pound New Zealand Dollar exchange rates, (currency : GBP AUD & currency : GBP NZD). With share markets edging sharply lower following the release, it appears likely that these pairs may enjoy some gains over the remainder of the week as the full magnitude of the American data sinks in.

Tonight’s Federal Reserve FOMC policy announcement takes on new significant, given the fact that America’s economy appears to have unexpectedly ground to a halt. The data has increased that the FOMC will announce additional extraordinary policy monetary measures, with an increase to the Fed’s controversial Quantitative Easing programme looking a distinct possibility for tonight. Such an outcome could see this afternoon’s gains for the Dollar reversed – nothing weakens a currency more than printing a large volume of that currency.

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