UK GDP data props up pound as markets eye today’s Fed events

UK second quarter GDP figures yesterday provided the pound with some measure of support, although they did not provide enough of a boost for Sterling to convincingly rebound from the previous day’s weakness.

GBP/EUR starts today trending at €1.0854, while GBP/USD is trending at US$1.2802. GBP/AUD is at AU$1.6202, GBP/NZD at NZ$1.7755, and GBP/CAD at C$1.6019.

Read on to find out why today is such an important day for the markets, and how the pound could sneak higher…

What’s been happening?

The pound found some support from the second estimate of Q2 UK GDP yesterday, although the markets struggled to find too much enthusiasm.

After June’s retail sales figures had been downgraded earlier in the week, some had feared this could see the first estimate for second-quarter growth cut down to 0.2%, in line with the rate of expansion seen in the first quarter. A print of 0.3% was therefore a relief, although business investment stagnated in the April-June period, which doesn’t bode very well.

The euro was on mixed form yesterday, with markets too busy focussing on today’s central bank events to pay it much attention. This allowed GBP/EUR to rise, even though data showed that French business confidence improved above forecast this month and Spanish GDP recorded solid growth in the second quarter.

The day’s US jobless claims and home sales figures didn’t deviate enough from their forecasts to push USD one way or the other, although GBP/USD was only able to hold opening levels. This was because Federal Reserve official Esther George claimed that interest rates may rise again this year.

What's coming up?

It’s all about Jackson Hole today. There’s no UK data on the economic calendar, but never rule out the possibility that something Brexit-related will crop up to either boost or undermine the pound.

Meanwhile, US durable goods orders – normally a top tier release – may be largely overlooked today, given the importance of the speeches that follow. Federal Reserve Chair Janet Yellen is set to speak at 15.00 GMT.

The odds of another interest rate hike in the US are at 42%, but there is a 2.3% bet on a cut in December. If Yellen sounds cautious, bets of monetary loosening may increase and the US dollar will tumble. Signs of confidence, on the other hand, may light a fire under USD.

A similar rule follows for European Central Bank (ECB) President Mario Draghi, although as his speech is after the close of the European trading session, it might not be until Monday that we really get to understand how the markets have interpreted his comments.

We’re here to talk currency whenever you need us, so get in touch if you want to know more about the latest news or how it could impact your currency transfers.

Phil McHugh,
Trading Floor Manager

Phil provides dealing and hedging services whilst also helping to manage Currencies Direct overall market exposure.