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Pound weakens as UK economy shrinks in Q2

currency-newsPound weakens as UK economy shrinks in Q2
The pound retreated on Friday as the UK’s latest GDP figures stoked concerns the UK could slip into a recession a little sooner than previously thought.

Meanwhile, trade in Sterling is mixed this morning, with GBP/EUR muted at €1.1810 and GBP/USD sliding to $1.2092. GBP/CAD is rangebound at C$1.5509, while GBP/AUD and GBP/NZD climb to AU$1.7098 and NZ$1.8904, respectively.

Looking ahead, will a slowdown in wage growth leave the pound vulnerable to additional losses in the first half of this week?


What’s been happening?

The pound limped over the finishing line last week, following the UK’s latest GDP figures.

Data published by the Office for National Statistics (ONS) reported the UK economy shrank by 0.1% in the second quarter, following a 0.6% contraction in June.

While the GDP figures beat forecasts, Sterling sentiment was slowly sapped throughout the day as economists picked apart the release and began to warn the UK could slip into a recession in Q3, a little earlier than the Bank of England (BoE) predicted in its latest forecasts.

The euro, meanwhile, traded in a wide range on Friday. The single currency initially strengthened as the latest European industrial production figures printed well above expectations, before its negative correlation with the US dollar saw it falter as the latter rallied.

This strengthening of USD exchange rates initially came in response to an uptick in US Treasury yields.

The US dollar’s gains were then reinforced by the University of Michigan’s US consumer sentiment index. As August’s preliminary release reported another improvement in morale.


What’s coming up?

Turning to this week, a key focus in the first half of the session will be the UK’s latest jobs report.

While domestic unemployment is expected to have remained unchanged in June, the accompanying earnings figures could undermine the pound if wage growth is shown to have slowed.

On the other side of the Channel the spotlight is likely to be on Germany’s latest ZEW economic sentiment index, with another deterioration of sentiment in August potentially denting the euro.

In the meantime, the release of the latest Empire State manufacturing index could provide some direction for the US dollar today. Will a drop in August’s index exert some pressure on USD exchange rates?
Currencies Direct

Currencies Direct

Currencies Direct is one of Europe's leading non-bank providers of currency exchange and international payment services. Since we were formed in 1996, we've maintained our focus on providing innovative foreign exchange and international currency transfer services to corporations of all sizes, online sellers and private individuals. We have also expanded our services to provide dynamic and pioneering "business to business" solutions to help companies, tier 2/3 banks and other non-bank financial institutions to process their international payments. Our headquarters are in the City of London (United Kingdom) and we have operations in continental Europe, Africa, Asia, and the United States. Currencies Direct is jointly owned by private equity firms Palamon Capital Partners and Corsair Capital.

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