Pound down as UK economy contracts 0.4% in April

Philip McHugh June 11th 2019 - 2 minute read

The pound stumbled on Monday as it faced pressure following the release of some gloomy domestic GDP figures.

Sterling remains subdued this morning, with GBP/EUR muted at €1.1196, GBP/USD flat at $1.2688 and GBP/CAD rangebound at C$1.6815, while GBP/AUD and GBP/NZD hold steady at AU$1.8235 and NZ$1.9236 respectively.

In the spotlight today will be the UK’s latest employment figures, with the pound likely facing further losses as markets brace for a slump in wage growth.

What’s been happening?

The pound got off to a poor start this week, with the currency facing a broad sell-off in the wake of the UK’s latest GDP figures.

According to data published by the ONS, the UK economy contracted by 0.4% in April, following on from a 0.1% slump in March as Brexit uncertainty dampened demand.

This led to sharp slump in Sterling sentiment as analysts speculated that the UK economy may contract in the second quarter, with the NIESR think tank suggesting the UK is facing a possible 0.2% decline in growth in Q2.

Helping to temper the losses in the GBP/EUR exchange rate however were reports that members of the European Central Bank (ECB) were pondering a potential rate cut as the bank wrestles with both slowing growth as well as a high euro exchange rate.

Meanwhile the GBP/USD exchange rate fell over half a cent on Monday as demand for the US dollar was bolstered following Donald Trump’s cancelling his threatened tariffs on Mexico as the country agreed to crack down on illegal emigration to the US, with USD investors cheering the move which it was thought would have hurt US companies.

What’s coming up?

Expect to see the downtrend in the pound persist throughout today’s session following the publication of the UK’s latest employment report.

While the unemployment rate is expected to have held at a 44-year low in April, the accompanying earning’s figures are likely to dent the pound as economists forecast that wage growth will have slowed to just 3%, their lowest levels since August.

Meanwhile, a lull in Eurozone data will likely leave EUR investors focused on the ECB today, likely limiting the appeal of the euro if rate cut speculation continues.

Finally, USD investors also face an absence of notable economic data today, potentially leaving movement in the US dollar driven by global trade tensions.

Written by
Philip McHugh

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