It’s the big one; today sees the release of the US economic growth data for the last quarter of 2010. As we all remember, the UK data was blighted by bad weather but most calculations suggest that even without the snow and ice, the UK economy hardly grew at all in the last three months of the year. Nevertheless, an economy that shrinks by 0.5% while inflation rises to 3.7% is struggling and, according to the Governor of the Bank of England, inflation could rise to 5% in the year ahead so things aren’t set to improve in the immediate future. That certainly explains Sterling’s poor performance over the past week which wasn’t helped by the sharp drop in consumer confidence as reported overnight. This was the worst reading in over a year and the largest one month drop since 1994. Who can blame beleaguered consumers when all the data they see is doom and gloom. This is all great news for Sterling buyers but a bit of a pain in the neck for sellers. David Cameron is in Davos for the World Economic Forum and he is expected to confirm his belief that the UK is starting to make progress and that retaining Britain’s top level credit rating has saved the UK masses of money in lower interest payments. I have no doubt that he is right but those with a better grasp of economics than I will be quantifying that gain against other costs as I write.

But back to the US Dollar; it must be remembered that the US also had a period of poor weather through December so those who forecast a figure of 3.5% growth in Q4 may want to revise their figure down but we are still expecting a much more attractive piece of data than the report we saw from the UK. The US data is calculated slightly differently to the UK figure so we can’t compare like for like exactly but we are expecting a more positive report from America nonetheless. The US Dollar which has been rather poorly supported in the last week may well find its feet today if the report is a good one. I think traders will largely ignore the International Monetary Fund chastising the US, Japan and Brazil for not tightening their belts soon enough if the economy is seen to be growing. Many in the markets are forecasting a rather dramatic response to the US data and a positive one at that. We shall see at 1.30 UK time when the figure is announced.

Japan’s credit rating was cut by one of the agencies last night and that has weakened the Yen slightly. The movement was only slight because the downgrade was due to large scale debt and little cohesive action to reduce it. That is not new news so traders were a tad underwhelmed by the announcement.

Elsewhere the Euro appears to have run out of steam as traders lose the confidence that it will press ahead above $1.36. As has been the case over the last year, just as traders start to get enthusiastic about the Euro, they pinch themselves and realise that the Eurozone is in deep mire and it is impossible to gloss over such fundamental problems. Many well respected commentators still think the Euro project is doomed but no one is quite sure what catalyst or disaster will be the coup de grace. However, we pretty well know we should be looking along the North Mediterranean coast or across the Irish Sea for clues. Or perhaps it will be Germany which finally says aufidersen to the rest of the Eurozone economies and there are many Germans who would love to have Deutschemarks back in their pockets and EU debt off their backs.

Farther afield, the Australian Dollar remains weak after Treasury minister; Wayne Swan outlined more details of the impact of the Queensland Floods. Queensland contributes 19% to the Australian economy so the loss of billions of Dollars worth of coal production and a whole season’s worth of agricultural output will have a medium term effect on the Australian economy. He has already calculated that it will wipe 0.5% off Australian economic growth and most of that effect will be seen in the first quarter of the year. So be ready for Aussie Dollar weakness around the release of the Q1 GDP figure in April. However, Mr Swan is more optimistic in the longer term and that should reassure the longer term traders out there.

And finally, former Miss Canada finalist, Mary-Lu Zahalan-Kennedy, is the first student to graduate with a degree in Beatles Studies. Mary-Lu knows all about the music, the people and the studio sound that the Beatles achieved. Quite what that qualifies her for is not clear and I would guess few English Students would want to spend thirty grand on the course but well done Mary-Lu. I just hope it is more a case of I feel fine than Get Back to where you once belonged. And just remember, love is all you need.


POST GRADUATE QUESTIONS

The graduate with a Science degree asks, "Why does it work?"

The graduate with an Engineering degree asks, "How does it work?"

The graduate with an Accounting degree asks, "How much will it cost?"

The graduate with a Philosophy degree asks, "Do you want fries with that?"