British Pound Higher as Preliminary GDP Figures Fail to Disappoint

Talking Points:

• 4Q year-on-year GDP expanded 1.9%, as expected
• Construction fell 0.1%, Services accelerated to 0.7%
• British Pound higher versus other major currencies

The British Pound traded higher versus other major currencies (at the time this report was written) after today’s Preliminary 4Q Gross Domestic Product (GDP) figures showed the UK’s economy grew in line with expectations. GDP expanded 0.5% in the three months to December, as was expected by economists, which was above the prior figure of 0.4%.The year-on-year figure came at 1.9%, below the prior 2.1%, but in line with expectations.

Looking into the report, the data suggested that services were again the main driver for the UK’s economy. Services output, which is the biggest share of the economy, rose to 0.7% from the prior 0.6% reading in Q3. On the other hand, construction fell 0.1%, and industrial production fell 0.2%. The numbers suggest that UK’s growth slowed to 2.2% in 2015 from 2.9% in 2014. It’s important to note that these are the preliminary figures and could be revised.

As was mentioned earlier today by DailyFX Currency Strategist Ilya Spivak, priced in BoE policy bets deteriorated in recent weeks, with no rate hike expected anymore in 2016. BoE Governor Mark Carney recently said that the conditions for a rate rise are not in place yet in the UK. These facts suggested that the British Pound could prove resilient to a disappointing GDP print while providing an outsized response on a positive figure. Taking this into consideration, the market seemed to take the fact that the numbers did not disappoint as enough to initiate a positive response and the British Pound traded higher versus other major currencies.

DailyFX Currency Analyst David Song identified the next interim resistance in the GBP/USD at 1.4860.