Weaker UK growth, slashed Tory lead leaves pound struggling

The pound fell to new lows at the close of the week following the release of worse-than-expected UK growth data and the latest election poll results.

GBP/EUR plummeted to €1.1465 from €1.1534, GBP/USD dropped below $1.2900 to trade in the region of $1.2859, GBP/AUD struggled to hold AU$1.7300, GBP/NZD lost 0.7% to hit a low of NZ$1.8264 and GBP/CAD shed 0.6% to trade in the region of C$1.7333.

What impact has the latest election news had on the pound? Keep scrolling to find out…

What’s been happening?

All in all, it’s fairly safe to say that it hasn’t exactly been the best week for pound exchange rates.

After stagnating for the first half of the week, Sterling tumbled on Thursday on the news that the UK economy juddered almost to a standstill in the first quarter of 2017. An initial estimate of 0.3% growth quarter-on-quarter was negatively revised to 0.2%.

A 1.4% drop in net exports was of particular concern as the post-EU referendum slide in Sterling was expected to support the sector.

The pound-negative news continued on Friday as election campaigning resumed following Monday’s tragic terror attack in Manchester.

The latest election poll published by YouGov/Times revealed that the Conservative’s lead against Labour now sits at just 5 points, down from a lead of 20 points only a couple of weeks ago.

The Conservatives are now commanding 43%, with Labour at 38%.

Given the prevailing belief that a stronger majority for the Conservatives would improve the government’s hand during Brexit negotiations, this latest twist left the pound reeling.

What’s coming up?

The GBP/USD exchange rate could experience further volatility before markets close for the weekend as the US publishes its own growth data for the first quarter.

The Federal Reserve recently indicated that it would need to see signs that the US economy is bouncing back after its earlier slowdown before it would progress much further down its rate hiking path.

Consequently, if the data reveals a slowing in output the pound could recoup some of its recent losses. However, GDP is believed to have come in at 0.9% (up from a previous figure of 0.7%) so GBP/USD could instead approach the Bank Holiday trading at new lows.

Looking ahead to next week and the biggest UK reports to look out for include the nation’s GfK consumer confidence index and Markit’s manufacturing/construction PMIs.

However, with the election within touching distance, political motivations are likely to be the main cause of pound movement. GBP exchange rates could keep falling if the gap between Labour and the Conservatives narrows further.

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.