UK GDP gives the pound a short term bounce
Friday 30 September, 2022
Daily Currency UpdateAfter a tumultuous week for the pound, dropping against the US dollar by over 6%, Thursday provided a respite for the currency after the release of UK GDP numbers. Compared with the same quarter a year ago, GDP rose by 4.4%, when it was expected to be 2.9%. This supported the pound alongside the intervention on Wednesday by the Bank of England and its short term Gilt buying programme. There is still some caution surrounding this move, as the options market suggests there is still a 30% chance that GBPUSD could fall below parity by year end. However its promising to note that Truss and Kwarteng are both now due to present their costings for their mini budget sooner than expected. Concerns also remain around Sterling Gilt yields, which is only 260 basis points away from its all-time high of 9.23% reached during the after math of the financial crash in 2009. However, there is hope that the Bank of England's intervention will lower these yields and reduce the cost of borrowing for the government during a time when it needs to fund a £50 billion tax cut.
Key MoversEUR/USD stayed relatively quiet above 0.9800 during the European trading hours on Friday after registering strong gains in the previous two days. After another week of global risk aversion sentiment, with Russia and Ukraine, and the Nord Stream gas pipe damage and talk of potential sabotage, the US dollar has had another strong week. The more recent reversal in EURUSD and GBPUSD direction could be partly due to investor profit taking. Leading banks have changed their projections on EURUSD, with the likes of Commerzbank now stating that 0.95 is their key support level for the pair going into the end of this year and a break below this could send the pair tumbling towards 0.90. Yesterday's US GDP posting came in at the expected -0.6% and unemployment claims came in slightly better than expected, though this did little to the US dollar which focused on more global events ahead of the next Federal Reserve meeting.
- GBP/USD: 1.1080 - 1.1225 ▲
- GBP/EUR: 1.1270 - 1.1410 ▲
- GBP/AUD: 1.6900 - 1.7210 ▲
- EUR/USD: 0.9755 - 0.9920 ▲