UK GDP surprises to the upside providing respite for the Pound
Friday 10 March, 2023
Daily Currency UpdateThe pound has been under pressure over the last 7 months, as concerns mounted that the UK economy was the worst performing in the G7, coupled with warnings from the Bank Of England that a long deep recession could be looming for the UK economy. However, today's GDP posting provides some respite for the pound, as these concerns now ease off. UK GDP grew 0.3% month on month in January versus the 0.1% expected and a -0.5% previous reading, which propelled the pound this morning after a week when it was on the back foot. There were mixed readings elsewhere, with the industrial sector activity showing a contraction in January as shown by data published by Office for National Statistics (ONS) today. Manufacturing output arrived at -0.4% MoM in January versus -0.1% expectations and 0% registered in December while total industrial output came in at -0.3% MoM vs. -0.2% expected and 0.3% last. On an annualized basis, the UK manufacturing production figures came in at -5.2% in January, missing expectations of -5.0%. Total industrial output plunged by 4.3% in the first month of the year against the -4.0% expected and the previous -4.0% reading. The pound is certainly not out of the woods here but has some breathing room as we head into the weekend.
Key MoversUS Federal Reserve Chairman Jerome Powell has made sure there is a heightened focus on today's US payroll data out at 1-30pm UK time. In his speech to Congress earlier this week, Powell curiously mentioned this data point as one among a couple of indicators framing the Fed's thinking around how far and fast interest rates need to rise. This, therefore, becomes a key indicator of the Fed's next move and will be watched very closely. Investors head into Friday pricing in a roughly 63% likelihood of a larger, 50 basis point increase to the Fed funds target rate this month. US job growth likely slowed to a still-solid pace in February, with the unemployment rate expected to hold at a more than five-decade low, which could see the Federal Reserve raising interest rates for longer and to a higher level to tame inflation. In the Eurozone, fears of more economic pain for the single bloc amid geopolitical tensions with Russia, sticky inflation, and higher rates seem to drag the Euro. It should be noted that the risk-off mood underpins the US Dollar’s haven demand and reduces the demand for its major rival the Euro.
- GBP/USD: 1.1880 - 1.1975 ▲
- GBP/EUR: 1.1240 - 1.1320 ▲
- GBP/AUD: 1.17980 - 1.8250 ▲
- EUR/USD: 1.0520 - 1.0615 ▼