GDP up, Pound slips

26 July, 2013

Matthew Boyle

Until yesterday the markets had been relatively stagnant with little in the way of any major data releases and as such little that had the ability to move the rates. All eyes remained fixed upon the UK GDP figures and anticipated a rise in Q2 from 0.3% to 0.6% and YoY from 0.3% to 1.4%. Indeed as the figures were released both results came in exactly in-line and as expected. However what was not expected was the resulting spikes of Sterling and GBP/EUR rates. Following the GDP release we saw the rate drop fairly rapidly by around 30 pips and by the close of business the pound had lost almost 0.75 of a cent. At the same time a raft of Eurozone production reports and money supply data came in under expectation and negative for the Euro, so the question must be asked why in light of this positive data for the pound the rate dropped?

Lena Komileva, Director of Consultancy at G+ economics “expectations had run ahead” in previous days and as such many traders had positioned for a better number, and with figures coming in-line this would explain the markets reaction. And against the USD the pound failed to rise above its one month high seen on Tuesday, despite rising around 3% since the announcement of the BoE minutes and the change in vote of the MPC to being unanimously against further Q.E. There is a certain amount of sentiment in the market at present however, that despite this change in vote the BoE forward guidance could be dovish and so the markets are starting to price this in.
Anyone needing to buy Euros might be well advised to consider a forward contract at present to avoid any further losses. Given the downward trend in recent months, and add to that now it seems despite posting generally good figures all round, it is continuing to struggle. For example- GDP up, house prices at a 3 year high, unemployment down, and the change of the MPC and Q.E vote. Despite all of this the pound is not only struggling to gain ground but continues to slip. With a UK trade deficit of 2.4 billion and new BoE chief Mark Carney advocating that the pound needs to be weaker to encourage export we may see further losses for the pound in coming weeks.
So it would seem that despite general economic recovery the outlook for the pound on the currency markets remains relatively bleak.

With a very busy week for data next week if you have any upcoming transfers to make speak to your Currency Index broker sooner rather than later to ensure you don’t get caught out in these turbulent and volatile times. We help you stay well informed and well ahead of the market.