Yesterday saw the end to an 18 month technical recession. This came as Quarter 4 GDP figures showed a 0.1% growth.  Although this is positive news for the UK, the expectation was that we would see a more wholesome growth of 0.4%.  The 0.3% shortfall initially weakened sterling across the board. 

By 10.30am GBP/USD had dropped to $1.6105 down from day highs of $1.6262, this was also partly due to investors opting for the safe-haven of the USD after China implemented a planned increase in required reserves for some banks, but the GDP figure alone dropped it a cent. 

Some gains were made in the afternoon session as Sterling partially recovered to $1.6160 after Standard and Poors Home Price Indices in the U.S. came in at -5.3% in November, 0.4% worse than expected, but a 2.3% better than expected consumer confidence figures supported USD.

Sterling also took an initial hit against the Euro sliding from €1.1535 to €1.1434, as the IFO Business Climate formed through businesses in German came in better than expected, showing positive expectations. 

However Sterling gained some of its losses back during the afternoon, reaching €1.1476, as Mortgage approvals during the morning session came in better than expected and the Euro Zones poor banking state, weighed heavily on the Euro.

Although we saw a GDP growth, this does not mean it will necessarily be sustained in 2010 Q1, and there is still a possibility that the Q4 revised figures could even see contraction.  Alistair Darling mentioned that the economy was on the road to recovery, but there is still a lot of uncertainty.

The growth in the UK economy leads many analysts to believe that the BoE will halt its 200 bil asset buying programmed next month, however interest rates could remain at a record low 0.5% for some time.

Bank of England Governor Mervyn King said U.S. President Barack Obama’s plan to tighten banks risk-taking, signaled radical reforms were on the table. But he said the UK could take its time to get the right bank structure.

At 9.15am this morning the markets were at, $1.6148, €1.1489, 12.3085 ZAR, 144.34 JPY, 1.7193 CAD, 1.6906 CHF, 11.7604 SEK and AUD $1.7980. EUR/USD 1.4096

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