UK GDP Beats Big -1.5500 in Vew?

Posted on

Market Drivers for April 25, 2013
UK GDP blows past estimates taking cable through 1.5400
High beta rallies against the dollar across the board
Europe -0.2% Nikkei 0 .6%
Oil $91.67/bbl
Gold $1443/oz.

Europe and Asia:
GBP GDP 0.3% vs. 0.1%

North America:
USD Initial Jobless Claims 6:30

UK GDP printed much better than forecast, allaying fears of a triple dip recession and driving cable to fresh 2 month highs above the 1.5400 level. UK Q1 GDP blew past estimates of 0.1%, expanding at 0.3% on a quarter on quarter basis.

The much better than anticipated growth was driven by strong activity in the services sector and a rebound in North Sea and oil and gas output. The news was a welcome relief to sterling bulls which have had to endure a string of weak economic data points over the past several months raising very real fears that UK economy could dip into yet another quarterly contraction.

Yet today’s data showed a surprising resilience in the UK figures indicating the underlying demand may be stronger than originally thought. One possible reason for today’s upside print in GDP is the relatively strong UK employment environment. Although wage growth has slowed markedly, hitting all time lows, job growth continues expand and as employment has increased it has clearly had positive impact on growth.

Today’s news may also ease pressure on the BOE to add further to its QE program which is likely to provide support for cable for the near term. The pair catapulted through the 1.5400 figure in the aftermath of the release and may make a run towards the key 1.5500 figure over the next several days as the shell shocked shorts get squeezed some more.

Many analysts have pointed out that despite today’s stronger GDP figures, UK economy remains 2.6% below its 2008 highs. However, with market sentiment skewed so negatively against the pound, today’s report was a major positive shock and therefore is likely to provide some momentum for the longs over the next few days.

Meanwhile in North America the eco calendar is relatively quiet with only US jobless claims on deck. US economic data has been missing forecasts lately and therefore today’s claims numbers may be watched by the market with particular scrutiny. The weak US data has been the primary reason for USD/JPY’s failure to break above the 100.00 level and if today’s number disappoint again the pair could tumble towards 98.50 as the day proceeds.

Boris Schlossberg
Managing Director

Leave a Reply

Your email address will not be published. Required fields are marked *