gbp fundamentals

British Pound Plunges Over 800 Points Intraday As UK GDP Signals Recession

Saturday, 25 October 2008 00:32:19 GMT  |  Terri Belkas, Currency Strategist

The British pound plummeted over 800 points during the European trading session to a low of 1.5257 - its biggest intraday drop against the dollar in at least 37 years - as UK GDP for Q3 fell more than expected to -0.5 percent, confirming the market’s recession fears.

This was the first contraction in 16 years and came on the tails a 0.0 percent reading in Q2 GDP. Looking at a breakdown of the report, nearly every component fell as the credit crunch took a toll on sectors ranging from finance to construction, and things are not likely to improve anytime soon as conditions have only worsened at the start of Q4. While the British pound subsequently bounced higher during the US trading session to consolidate just below 1.59, the GDP data has raised speculation that the Bank of England will cut rates by at least 50bp at their next meeting on November 6, if not by 100bps. With Credit Suisse overnight index swaps pricing in nearly 200bps worth of rate cuts over the next 12 months, an aggressive reduction next month doesn’t seem out of the question. Looking ahead to next week, there’s little in the way of UK event risk, but according to Technical Strategist Jamie Saettele, this week’s ATR reading for GBP/USD was one of the largest ever. With ATR’s of similar magnitude leading to significant turns in the 1990’s and earlier this decade, it may be time to start looking for indications of a bottom in the pair.

Related Article: UK Economy Slips Into a Recession as GDP Contracts 0.5% in the Third Quarter 

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