Weaker than expected GDP prints were the main focal point on Friday. First up was the UK’s GDP reading. In line with our warnings and generally deteriorating UK data, the figure missed to the downside, printing 1.2% annualised growth and just .1% through Q1. These are pretty concerning numbers considering we still have yet to get into real Brexit turmoil. The primary short term impact however is that it has all but removed any possibility of any rate hikes in the BOE’s May 10th meeting next month. This has been our primary argument against the appreciating pound and the result has seen GBP drop back over 4.3% vs the USD, and 2.3% vs the euro from its April highs. EURGBP trades back above .8800, while GBPUSD now trades around 1.3750.
It was not all plain sailing for the USD however on Friday, the USD index pulled back from key resistance we highlighted on Friday, this resulted in a slight bounce in EURUSD through Friday afternoon, the single currency actually ending the day trading higher across the board. US GDP headlined at 2.3% through Q1 on an annualised basis vs the expected 2%. Broad risk appetite across the globe was well supported on Friday particularly in Europe, more so by stronger than expected Q1 earnings and positive progress in Korea, that being said every little helps and markets don’t need too much encouragement to look to trade higher. In the US session things were a little more mixed and major indices closed lower on the week. There’s plenty of data expected from the US later but focus will be on PCE core figure expected to come in at 1.9% up from 1.6%. ISM data tomorrow will also carry some weight for USD expectations, but as usual Friday’s NFP will always be a market favourite.
Over the weekend the S&P affirmed the UK’s rating at AA/A-1 with the outlook at negative, while Fitch rating hold at AA with a negative outlook. Not great for a nation about to go through one of its biggest economic transitions in its history. Joining the union may have been one thing but leaving it and reversing progress and restarting trade talks and negotiations will almost certainly put further pressure on the UK economy. The weather has shouldered some of the blame for the weaker UK data in Q1 but this feels like a major cop out from the higher powers, construction and manufacturing has seen signs of slowing in recent months and while the acceleration lower may have caught GBP off guard, it was not totally unexpected. With that in mind we’ll be keenly watching UK PMI’ due for release, the April figures are expected to show a rebound so may well give GBP back some life this week, but it will not change the shape of interest rate hike expectations enough to see GBP pairs rebound to previous highs.