The U.K.’s latest GDP figure may hit the value of sterling and reveal any ongoing impact of Brexit

Nov 22 • Mind The Gap • 1040 Views • No Comments

At 9:30am GMT, on Thursday November 23rd, the U.K. statistics agency the ONS will reveal both the latest monthly and yearly GDP figures for the U.K. economy. The forecast is for no change; 1.5% growth annually and 0.4% for quarter 3, matching the 0.4% reported for Q2. Whilst such figures are less alarming than many analysts and investors feared for the U.K. after its referendum decision taken in June 2016, 1.5% growth represents a reduction from the previous 2%+ growth figures in 2016 and falls far short of the projections made by both the British government and their OBR agency (office of business responsibility) for 2017.

The GDP figures will be published the day after the U.K. Chancellor has delivered his budget, recent data has revealed that government borrowing and the deficit has increased MoM, the GDP figure will therefore be carefully monitored by investors for signs of any ongoing structural economic weakness, such as revealed by the negative -0.3% YoY retail growth figure recently recorded, in an economy heavily reliant on the consumer, this figure caused investor concern.

Investors and analysts may believe that (temporarily) the worst is over for the U.K., in terms of the Brexit impact. Overall sterling has maintained an (arguably) high level versus its peers, despite the ongoing Brexit issues. Since reaching a multiyear peak of 93.00 in late August 2017, EUR/GBP has reverted to the mean; now sited close to the 89.00 level, failing to hold at the 90.00 handle. GBP/USD is now holding at a 1.32 level, having fallen through 1.20 in January, although it must be noted that cable’s gain has been primarily as a consequence of dollar weakness, as opposed to sterling strength.

Should the latest growth figures miss targets, then it’s highly likely that sterling crosses and cable (GBP/USD) will be impacted. Similarly, if the figures beat the predictions, then sterling should rise versus its peers and the Q2 figure did reveal a marginal improvement on the 0.3% previously recorded for Q1, whilst Q3 historically can often represent the best quarter for economic growth.

As hard data economic calendar events, GDP figures always have the ability to effect the value of the domestic currency of the country in which the figures are released, therefore FX traders would be advised to: diarise the event, monitor their exposure to cable and sterling crosses, and adjust their risk and overall positions accordingly.

U.K. KEY ECONOMIC METRICS SNAPSHOT

• GDP quarterly growth 0.4%.
• GDP annual growth 1.5%.
• Inflation (CPI) 3%.
• Unemployment 4.3%.
• Wage growth 2.2%.
• Interest rate 0.5%.
• Retail sales YoY -0.3%.

 

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