The Pound has lost ground this morning following the release of worse than expected UK growth figures.
This morning’s data showed GDP had only grown 1.8% in the month of May versus an expected 5.5%. This shows the rebound in growth was not as robust as expected and indicates that the recovery in the UK economy might be more gradual than anticipated. It also increases concerns that slow growth could feed into more job losses across the country and exacerbate the situation further. The Bank of England are closely monitoring data releases and for now they remain sidelined, but the more weak data they see, the more likely they will ease monetary policy and potentially introduce negative interest rates.
As a result, the GBP/USD has moved down to a 1-week low and the GBP/EUR towards a 2-week low. Both crosses remain within familiar ranges though, as the currency markets continue to trade with relative calm. However, we expect a busy week in the FX markets with more data and news being released which might shake things up a bit. From a Pound perspective, we have inflation figures tomorrow and then job figures on Thursday – will these disappoint and put further pressure on the Bank of England to act? Over in Europe, traders will be closely monitoring the ECB meeting (Thurs) and then the key European Council meeting to see if an agreement can be reached on the 750 Billion Euro covid stimulus package (Fri/Sat). Finally, US retail sales figures out on Thursday afternoon will give a good indication of how well the US economy is recovering.