As the world’s largest economy is expected to expand at a slower pace in the second-quarter of 2010, the advanced GDP report could spur further weakness in the U.S. dollar and lead the central bank to hold a loose policy stance throughout the second-half of the year as the outlook for future growth falters.
The Scandinavian currencies, particularly the SEK and NOK, saw a particularly bullish week against both the euro and dollar. As investors begin looking for alternative European investments due to the unstable euro-zone situations, the kroner has emerged as a potential substitute. In the last week alone, the Swedish krona has shot up more than 500 pips against the euro and more than 850 pips versus the greenback. The Norwegian krone has faired even better against the major currencies. EUR/NOK has dropped over 1600 pips over the last week, while USD/NOK has fallen closer to 1700 pips.
Analysts attribute the stable Scandinavian currencies to a combination of things. The increase in global trade has helped boost Sweden’s export based economy. Norway on the other hand, with its large oil reserves, has largely avoided the global economic crisis. It appears that the numerous debt crisis and continuous unemployment plaguing the rest of Europe and North America has largely bypassed the Scandinavian countries.
As for the week ahead, the kroner should continue to see gains against its main currency rivals. Analysts are predicting a similar U.S. unemployment figure from last week, and the U.S. Advance GDP report is forecasted to show a slight decrease from the previous report. If true, the Scandinavian currencies will likely continue to emerge as one of the safest assets in the forex marketplace.
The British Pound extended the rally from the previous day and rallied to a fresh weekly high of 1.5412 during the European trade as the advanced 2Q GDP report for the U.K. reinforced an improved outlook for future growth, and the GBP/USD is likely to maintain the upward trending channel from the June low (1.4346) as the recovery gathers pace.
As economic activity in the U.K. is expected to expand for the third consecutive quarter, the rise in GDP is likely to encourage an improved outlook for future growth, and the data could lead the British Pound to retrace the decline from earlier this week as the recovery gathers pace.
