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Pound Looks to UK GDP to Gauge Growth Trends After Brexit Vote

Pound Looks to UK GDP to Gauge Growth Trends After Brexit Vote

Ilya Spivak, Head Strategist, APAC

Talking Points:

Third-quarter UK GDP figures headline the economic calendar in European trading hours. The release will mark the first look at cumulative growth trends since Brexit referendum. Expectations suggest output added 0.3 percent in the three months through September, amounting to the weakest performance in a year.

UK news-flow has tended outperform relative to consensus forecasts in recent months, suggesting analysts’ models have underestimated the economy’s vigor and opening the door for an upside surprise. Such an outcome could offer a near-term boost to British Pound but follow-through may prove lacking.

Leading survey data suggests that the pace of economic activity growth has fully recovered from a deep slide in the immediate aftermath of the vote to leave the EU, registering at an eight-month high in September. As such, a GDP print that strikes an upbeat tone is unlikely to prove especially surprising.

Sterling may be further capped considering the BOE has maintained a firmly dovish bias even as it admitted that the UK has shown to be more resilient than expected after the referendum outcome. This likely reflects the inherent lag in businesses’ ability to adjust to negativity, meaning the worst may yet loom ahead.

Later in the day, the US Durable Goods Orders report enters the spotlight. A flat result is expected in September, which would put the volatile data series squarely at its 12-month average and offer a relatively lead for Fed rate hike speculation.

With that in mind, the release may mean relatively little for the US Dollar. Indeed, traders may already be reluctant to show directional conviction ahead of Friday’s release of GDP figures. That is projected to show annualized growth accelerated to 2.5 percent, the strongest since the second quarter of last year.

The Australian Dollar declined in overnight trade. The move tracked losses across Asian stock exchanges to suggest souring sentiment as the source of selling pressure facing the risk-sensitive currency. Sterling corrected lower having broadly outperformed against its major counterparts yesterday.

Asia Session

GMTCCYEVENTACTEXPPREV
21:45NZDTrade Balance (NZ$) (SEP)-1436m-1145m-1265m
21:45NZDExports (NZ$) (SEP)3.47b3.53b3.38b
21:45NZDImports (NZ$) (SEP)4.90b4.68b4.62b
21:45NZDTrade Balance 12 Mth YTD (NZ$) (SEP)-3404m-3113m-3109m
00:30AUDExport Price Index (QoQ) (3Q)3.5%2.0%1.4%
00:30AUDImport Price Index (QoQ) (3Q)-1.0%-0.8%-1.0%
01:00CNYSwift Global Payments CNY (SEP) 2.03%-1.86%
01:30CNYIndustrial Profits (YoY) (SEP) 7.7%-19.5%

European Session

GMTCCYEVENTEXPPREVIMPACT
06:00CHFUBS Consumption Indicator (SEP)-1.53Low
08:00EUREurozone M3 Money Supply (YoY) (SEP)5.1%5.1%Low
08:30GBPGDP (QoQ) (3Q A) 0.3%0.7%High
08:30GBPGDP (YoY) (3Q A) 2.1%2.1%High
08:30GBPIndex of Services (MoM) (AUG)0.1%0.4%Low
08:30GBPIndex of Services (3M/3M) (AUG)0.8%0.6%Low
10:00GBPCBI Retailing Reported Sales (OCT)-2-8Low
10:00GBPCBI Total Dist. Reported Sales (OCT)-17Low

Critical Levels

CCYSupp 3Supp 2Supp 1Pivot PointRes 1Res 2Res 3
EUR/USD1.07681.08391.08731.09101.09441.09811.1052
GBP/USD1.20341.21261.21861.22181.22781.23101.2402

--- Written by Ilya Spivak, Currency Strategist for DailyFX.com

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