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Pound nosedives as UK economy almost stops growing

Philip McHugh April 30th 2018 - 2 minute read

The pound plummeted on Friday as it was met by a heavy sell-off in the wake of some extremely poor UK growth figures.

Sterling remains subdued this morning, with GBP/EUR flat at €1.1347, GBP/USD edging lower at $1.3752 and GBP/CAD unmoved at C$1.7671. At the same time GBP/AUD and GBP/NZD are also showing few signs of life as they hold steady at AU$1.8197 and NZ$1.9461 respectively.

The US will publish its latest PCE price index later today, with a possible uptick in inflation likely to prompt the US dollar to surge higher…

What’s been happening?

The pound was met by heavy losses at the end of last week session following the publication of the UK’s latest GDP figures.

The ONS reported that GDP growth slowed to just 0.1% in the first quarter of 2018, slumping from 0.4% at the end of last year, meaning the UK economy expanding at its slowest pace since 2012.

The minimal growth has also prompted further concerns regarding the possibility of a rate hike from the Bank of England (BoE) next month, with analysts suggesting that this may have boosted the case for policymakers to delay their hike until later in the year.

The GBP/EUR exchange rate saw last week’s gains erased on Friday due to the broad based sell-off of the pound.

However it wasn’t just GBP weakness that allowed the euro to push higher at the end of last week’s session, as a robust fall in German unemployment and the Eurozone’s better-than-expected business confidence figures lent some support to the single currency.

Meanwhile the GBP/USD exchange rate fell over 1% on Friday on the back of the UK’s disappointing growth figures, with the US dollar prevented from suffering a similar fate to the pound as the latest US GDP figures printed higher than expected.

What’s coming up?

The pound may struggle today amid a lull in domestic data, with markets possibly focusing of the resignation of the Home Secretary, Amber Rudd, and any possible consequences for Theresa May’s government.

Movement in the euro exchange rate today will be largely dependent on the reaction to Germany’s latest CPI data, with a possible uptick in inflation likely to reflect well on the single currency.

Meanwhile USD investors will be waiting for the release of March’s PCE price index later this afternoon.
The PCE index is generally seen as the Federal Reserve’s preferred measure of inflation, with an uptick in last month’s data likely to drive the US dollar higher on hopes that it will build the case for the Fed to accelerate its monetary tightening.

Written by
Philip McHugh

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