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GBP falls as UK economy shrinks by a fifth

GBP - British Pound

Sterling trades lower this morning as the latest UK GDP figures make for grim reading. The office for National Statistics showed the UK economy contracted sharply and was ‘still a quarter smaller in May than in February’.

While the data for May was expected to be weak, due to COVID-19 lockdown measures, the harsh reality is that these figures may well put pressure on the UK government to look at new measures to boost growth. The UK economy did grow in the month of May by 1.8% but fell short of forecasts of 5.5%.

As such, Sterling has fallen against all of its major counterparts with GBP/USD dropping to intraday lows of 1.2507 and GBP/EUR looking likely to break below the 1.10 handle.

Looking ahead, important UK economic data releases continue this week with the June inflation numbers released on Wednesday and the latest look at the UK employment and average earnings on Thursday. If these data points follow the latest GDP figures, the pound could test further lows against all currencies.

Key Movers


The US dollar edged marginally lower when measured against a basket of key major counterparts. Optimism, based on that the pandemic’s resurgence in the US was reaching its peak, continued through early trade on Monday as the rate of increase in new infections across key US hot spots slowed. Having drifted toward a one month low the dollar found support following reports that California will re-impose strict lockdown measures, forcing the closure, of bars, restaurants, gyms, hair salons and other service providers in a bid to stem the spread of the virus in some of the hardest hit counties.

The Euro advanced through trade on Monday, up 0.4% and testing a break above 1.1350 having touched intraday highs at 1.1373. Optimism ahead of this week’s EU leaders summit helped bolster demand for the common currency as investors look to EU officials for further updates regarding the EU recovery fund. The current plan allows for 750 billion Euro’s to be distributed to the worst effected countries via a series of grants and loans. With the Netherlands, Denmark and Austria all questioning the issuance of grants and shared debt obligations investors will be keenly attuned to any amendments in the proposal and/or sings the current proposal may be derailed. Should EU leaders agree a package this week we could see an extended risk on move helping drive risk currencies higher and force haven assets lower.

Expected Ranges

GBP/USD: 1.2435 - 1.2535 ▼

GBP/EUR: 1.0925 - 1.1045 ▼

GBP/AUD: 1.7945 - 1.8065 ▼

GBP/NZD: 1.91 - 1.9250 ▼

GBP/CAD: 1.6975 - 1.7115 ▼