Thursday: UK GDP data see British pound sold-off on volatile day for FX



Due to a technical glitch Pound Sterling Live was down for much of the morning. And what an interesting morning it has been! GBP is being sold-off - this time on the good news that the UK is seeing a welcome return to consistent growth. Read on for the reactions to today's GDP data.

 

16:30: Decidedly mixed ahead of technically drive Friday

Tomorrow is devoid of any economic data so we will focus on fundamental forecasts and technical analysis.

Sterling is all over the shop at the London close:

  • GBP/EUR is 0.14 pct down at 1.1589.
  • GBP/USD is 0.14 pct higher 15336.
  • GBP/AUD is 0.11 pct lower at 1.6697.
  • GBP/ZAR is 0.5 pct higher at 15.0604.
  • GBP/NZD is 1.28 pct in the red at 1.9057.

NB: These are spot market rates to which your bank will charge their own discretionary spread. However, an independent FX provider will guarantee to undercut your bank's offer, thereby delivering you more currency. Please learn more.

14:41: Read this!

Stephen Gallo at BMO Capital says sterling will be more responsive to bad data in coming months:

"Macro economically-speaking, there exist two economies that can single-handedly drag the Euro Area into or out of weaker growth prospects: the UK and Germany. If asset price fluctuations following the release of Q2 UK GDP this morning are anything to go by, the UK is more heavily linked with the rest of the Europe (and vice-versa) than most would care to admit, ourselves excluded.  

"We will look for increasing signs over the next 12 months or more that ECB and UK monetary policies are moving together – broadly speaking.  For now and until the BoE indicates some willingness to let rates rise, the reaction to today’s GDP release probably confirms that there is more downside potential in the GBP on relatively weak data than there is upside potential on relatively strong data."

14:17: GBP-USD in fresh recovery, but volatility is with us

The pound to US dollar exchange rate has actually recovered a great deal of ground this afternoon. As the graph shows though trade is extremely volatile, but in the short term GBP is picking up momentum again.

Lee Mumford at Spreadex tells us why the US dollar has suffered a setback:

"Jobless claims from the US grew in the last month as annual auto-plant shutdowns continued to affect data. Jobless claims rose by an expected 7,000 to 343,000 in the week ended July 20th whilst core durable goods orders came in below expectations, reporting a 0.5% decline in orders."

 

13:32: Were ONS too pessimistic on construction?

We hear from one analyst who suspects that today's GDP data should have been better than announced. Shaun Osborne at TD Securities says:

"We had penciled in stronger growth in the construction sector at +2.5% in our forecast models, and we suspect that the ONS forecast for June construction activity (they look for -2.3% M/M) could be overly pessimistic, so there’s a risk of an upward revision to Q2 GDP in its second print on August 23."

13:16: GBP/EUR + GBP/USD forecasted lower

In response to today's losses we see the GBP/EUR has been forecasted lower (EUR/GBP higher) by analysts at Trading Central:

"Our preference: Long positions above 0.858 with targets @ 0.8645 & 0.8675 in extension.

"Alternative scenario: Below 0.858 look for further downside with 0.8555 & 0.8525 as targets."

Also under pressure is the GBP/USD:

"Our preference: Short positions below 1.539 with targets @ 1.5265 & 1.522 in extension.

"Alternative scenario: Above 1.539 look for further upside with 1.543 & 1.5475 as targets."

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11:43: Sterling in the red

As we approach mid-day in London we see the British pound sterling (Currency:GBP) has taken a hit following today's GDP data.

  • The pound to euro exchange rate is 0.16 pct lower at 1.1584.
  • The pound to US dollar exchange rate is 0.17 pct in the red at 1.5288.
  • The pound to Australian dollar exchange rate is 0.21 pct lower at 1.6677.

 

Earlier: GDP data in line with expectations, profit taking sees selling

As mentioned, Pound Sterling Live was hit by an incredibly annoying technical glitch, so, a summary:

At 9:30 the ONS announced that GDP growth for the second quarter was at 0.6 pct - in line with expectations. This is compared to 0.3 pct growth in the previous quarter.

The problem for the British pound though is that markets expected better.

As Boris Schlossberg at BK Asset Management explains:

"Both euro and cable were lower in morning European trade after economic data from the region simply matched investor expectations, spurring a profit taking selloff that send EUR/USD below the 1.3200 level and GBP/USD below 1.5300."

So, profit taking is the order of the day it seems.