Investors eye US GDP growth

As investors digest the latest growth data from the UK and attempt to end the year on a positive note, European stock markets are expected to continue to move marginally higher on Thursday.

With the holiday season fast approaching, European markets have shown a sense of optimism. Equities soared Wednesday due to a slight improvement in German consumer sentiment, followed by a rebound in consumer confidence in the US. As a consequence, it is being argued that at the beginning of 2023, the economic slowdown expected for the region may not be as severe as feared.

However, data released earlier Thursday showed that Britain's gross domestic product rose just 1.9% year-over-year in the third quarter, a decrease of 0.3% from the previous quarter, indicating that the economy may soon be headed into recession. As part of its long-term efforts to curb inflation near 40-year highs, the BoE and its European Central Bank colleagues raised interest rates last week, along with the Federal Reserve. It is worth noting that the central bank while tightening monetary policy in November, warned that the UK could be plunged into the most prolonged recession in a century.

After the Bank of Japan changed its policy abruptly on Thursday, the US dollar fell as a result of risk-on sentiment. Due to upbeat data released Wednesday, which showed US consumer confidence rose to an eight-month high in December, the dollar traded on the back foot Thursday due to a pickup in risk sentiment.

At the end of the session, investors will be looking forward to the release of third-quarter US GDP growth, which is expected to remain unchanged from last week's reading, at 2.9%, as well as the release of weekly unemployment claims, which are expected to rise slightly from the previous week.

After the BOJ allowed the 10-year bond yield to move in a wider band the USD/JPY fell 0.5% to 131.88, with the yen remaining near a four-month high. Closing of the year above 130.00 could be considered a positive development for the BoJ as it could indicate that speculative pressure on further policy normalization has been held in check for the time being.

EUR/USD

In addition, the EUR/USD rose 0.5% to 1.0655 on strong sentiment in the overall market. The EUR/USD may stabilize around 1.600 by the end of the year as volatility begins to decline. However, a drop to levels below 1.0500 levels is possible if market sentiment starts to deteriorate, especially on the energy front.

GBP/USD

Despite data showing Britain's economy contracted more than first estimated in the third quarter of this year, GBP/USD climbed 0.5% to 1.2144. In the July-September quarter, the Office for National Statistics reported a decline in economic output of 0.3%, compared to a previous estimate of 0.2%.