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GBPUSD to Extend Losses After Huge UK GDP Miss

GBPUSD to Extend Losses After Huge UK GDP Miss

2018-04-27 09:15:00
Martin Essex, MSTA, Analyst
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GBPUSD talking points:

- The UK economy grew by just 0.1% quarter/quarter in the first three months of 2018, well below the 0.3% predicted. Year/year it expanded by a miserly 1.2% rather than the 1.4% forecast.

- That has made a Bank of England rate increase in May far less likely, GBP has dropped in response and could well weaken further.

Check out the IG Client Sentiment data to help you trade profitably.

And for a longer-term outlook read our Q2 forecast for GBP.

Downward pressure on GBP persists

UK GDP expanded by only 0.1% in the first quarter of 2018, below both the 0.3% expected and the 0.4% recorded in the fourth quarter of 2017. Year/year data painted a similar picture, with growth of 1.2% well below the 1.4% predicted.

That year/year increase was the lowest since the second quarter of 2012 while the quarter/quarter number was the weakest since the fourth quarter of that year.

The data make a UK rate increase on May 10 far less likely and GBPUSD suffered as a result.

GBPUSD Price Chart, Five-Minute Timeframe (April 27, 2018)

Latest GBPUSD price chart

Chart by IG

Click here for the near-term technical outlook for GBPUSD

The weakness of UK GDP was no surprise given the fragility of retail spending and the bad weather in the first quarter, including the so-called Beast from the East. That was bad news for the UK construction sector, recent economic data have been soft and Bank of England Governor Mark Carney has recently taken a relatively dovish stance.

However, the figures were even weaker than predicted and the anaemic growth in the quarter was not due wholly to the bad weather.

That has led to a cooling of expectations of a UK rate rise when the Bank’s monetary policy committee next announces its decision on May 10, when the Bank’s quarterly Inflation Report is due to be published. The probability of a rate increase at the meeting had already fallen to around 60% and the latest data make a rate hike even less likely, with the chances of a tightening of policy down to 25%. However, a bounce in economic growth in Q2 remains a possibility given the improvement in the weather in April.

For the British Pound, this is exceptionally bad news. It fell steeply after the data release and can now be expected to drop even further.

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--- Written by Martin Essex, Analyst and Editor

Feel free to contact me via the comments section below, via email at martin.essex@ig.com or on Twitter @MartinSEssex

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