Data released earlier today from the ONS showed the UK’s GDP for the third quarter unchanged at 0.7%, while GDP on an annualized basis declined to 2.6%, below expectations of a 3% increase. The index of services was unchanged at 0.7% meeting analyst expectations.
The British Pound eased ahead of the data and touched a new intraday low to 1.55518 breaking down from the tight range the Cable was trading in for the past month. A confirmed break down from this level will see the Cable target the levels of 1.5486 well within the next week or two, marking a fresh low since August 2013.
The third and final estimate of the quarterly GDP declined 0.7% compared to 0.9% growth during the second quarter. Other data included the UK’s budget deficit which also gapped wider to a deficit of 27 billion GBP; however the recent crisis in Russia which has seen continued capital outflow to its European peers including UK, Europe and Switzerland is likely to shrink the deficit based on foreign investment coming into the country.
Figure 1: UK GDP Annual Growth Rate (Tradingeconomies.com)
With most of the economic data done with for the third quarter, markets will be looking to the fourth quarter data due to be released in the New Year. End of year sales and stable PMI’s are likely to give the fourth quarter a boost, but questions still weigh in regards to the BoE’s interest rate hikes. At the time of writing, the markets are looking to a delayed interest rate hike in the UK, which was earlier expected to start somewhere during the spring of 2015, but that view seems to be slowly weakening.
Major institutional analysts have called for further weakening in the Cable with the pair likely to test the lows of 1.50 should the current scenario continue. The EURGBP managed to stage a rally on the weaker fundamentals as the Euro was supported by a fairly better than expected consumer sentiment released yesterday, but the longer term downward pressures continue to persist as markets look to the ECB’s QE announcement as early as January next year. The EURGBP at the time of writing made an intraday high to 0.786 levels. The Pound was weaker against most of its peers including the Canadian and the Australian Dollar.
Ahead of the holiday season, the US trading session later today will see the release of the final estimates of the Q3 US GDP along with the PCE and durable goods orders for the month. A better than expected reading in the GDP, which has consistently managed to rise above expectations in all the previous readings could reaffirm the US Dollar’s rally into the volume thin holiday trading session into the New Year.
