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There was some excitement in the overnight session following the release of preliminary GDP numbers in the European Union. Data showed that the Euro-area economy expanded 0.3% during the second quarter of 2013. This was the first full quarter of expansion since the 4thquarter of 2011.

The growth was fueled by stronger than expected output from Germany and France, which had individual GDP results of +0.7% and +0.5% respectively. The data overnight signals an end to the longest recorded recession in the Euro-area. However the story remains a ‘Tale of Two Recoveries’ as nations like Spain and Greece continue to struggle with unemployment concerns, especially in the youth segment.

Off the charts, the common currency remains lower on the day against the USD as investors continue to focus on the Federal Reserve and the prospect of Tapering. This sentiment also helped push the benchmark US 10-year yield up to near a 2-year high around 2.71%. The Euro also failed to make any meaningful gains against the Japanese Yen or the British Pound in overnight trading, however did pick up some ground against the Swiss Franc. The EURCHF touched its highest level in a month following the European GDP data, which reduced safe haven demand for the Swiss unit.

The Sterling has enjoyed a strong session, advancing against most major currencies on the back of some constructive employment statistics. Data released overnight showed that the number of people filing for unemployment benefits in the UK contracted by 29.2k, besting the Reuters consensus forecast of -15.0k, a smaller contraction. This helped hold the unemployment rate steady at 7.8% and is an encouraging sign for the British economy.

Minutes from the Bank of England’s (BoE) August meeting were also released during the London session and showed a surprising split in the vote to enact Forward Guidance. The vote, which was expected to be unanimously ‘in-favour’ of linking the BoE’s Quantitative Easing programs & interest rates to some kind of economic indicator, did in fact have one dissenter. Martin Weale voted against new BoE governour Mark Carney’s centerpiece policy, noting that it could push up medium-term inflation expectations and thus increase yields. Higher yields would be the opposite of what the BoE’s wants since it needs to keep borrowing rates low in the UK to help stimulate strong growth, which remains elusive. It is worthwhile mentioning that Weale backed the concept of Forward Guidance, he just didn’t support the provision on inflation.

The minutes cast doubt on the likelihood that the BoE will actually keep the benchmark rate low for the 3-years that Carney mentioned in his initial report. Between the employment statistics and BoE minutes the GBP has made strong gains against its mainland contemporaries the EUR and the CHF, achieving its strongest value in 1 & 2 months respectively. The Pound also took ground against the USD and JPY.

The American session has started off on a bit of a disappointing note. July PPI data out of the USA missed the mark, printing 0.0% against expectations of 0.3%. The data, which measures the change in prices for finished goods sold by producers, tends to be strongly correlated to CPI, and after this morning’s release points to a below expectation outcome, which could delay the timetable for Tapering. According to the report, a drop in natural gas and gasoline prices played a key role in the flat PPI number.

The PPI number has taken a bit of wind out of the sails of the Greenback, however moves have been muted due to thin summer trade. The USDCAD continues to trade in the overnight range as do most major pairs. It seems markets are more focused on the recent comments from several Fed members that then to suggest a September Taper.

Further reading:

EUR/USD Aug. 14 – End of recession only enough for a small bounce

Excellent UK data still not digested by the markets