GDP
figures released yesterday showed that the US economy contracted in the fourth
quarter of 2012, falling below market expectations.

However
further analysis of the figures show that a 22.2% slump in defence spending
subtracted 1.3% from the headline GDP figure. Positive signs for the economy
though can be seen with consumer spending rising by 2.2% and business
investment 8.8% higher.

GDP
figures released yesterday showed that the US economy contracted in the fourth
quarter of 2012, falling below market expectations.

However
further analysis of the figures show that a 22.2% slump in defence spending
subtracted 1.3% from the headline GDP figure. Positive signs for the economy
though can be seen with consumer spending rising by 2.2% and business
investment 8.8% higher.

The
lack of growth, however, would have disappointed Ben Bernanke as the Federal
Open Market Committee signalled that they weren’t close to easing up on their US$85
billion monthly bond purchases until an improvement is seen in employment
figures. Payroll processor ADP showed that the US private sector added 192,000
jobs in January, coming in above market expectations.

Despite yesterday’s 
GDP figures revealing the Spanish recession has deepened, the euro continued to
trade higher as consumer confidence and economic sentiment rose. The euro also
drew further support as Italian 10 year bond yields fell to 4.17% – the lowest
since 2010.

Better
than expected mortgage approvals from the UK did little to boost the pound
yesterday and later in the evening the New Zealand dollar drew strength as the
Reserve Bank of New Zealand decided to keep its monetary policy and interest
rate unchanged and voiced optimism about the economy.

This
morning we have seen the pound draw strength following reports that UK consumer
confidence improved and house prices rose in January. German retail sales figures
disappointed markets falling to -4.7% against an expected -1.6% in Germany,
however the unemployment rate has dropped to 6.8%.

US
jobless claims are forecasted to rise this afternoon, validating the Fed’s
decision last night to maintain its asset purchase program. Thus we could see
further US dollar weakness leading up to the headline non-farm payroll figures
due for release on Friday.

Key Announcements:

10.00am
– EUR – Consumer Price Index: Last month’s figures came in at 2.2%.

13.00pm
– EUR – German Consumer Price Index: Expected to decrease to 2%.

13.30pm
– CAD – Gross Domestic Product: The last figures came in at 1.1%.

13.30pm
– USD – Initial Jobless Claims: Expected to rise to 351k.

13.30pm
– USD – Personal Spending: Expected to drop to 0.3%