The pound has shrugged off today’s slowdown in UK Q1 GDP.
While the fall was a little bit steeper on a quarterly basis to 0.3% the annualised number was revised higher from 1.9% to 2.1%. While the decline in output is a little disappointing, the March data, which isn’t included in these numbers, was better which means the numbers are quite likely to get revised up in the coming weeks. With the economic data not expected to surprise too negatively over the coming weeks and the onset of the UK election the prospect of a higher pound heading into the June vote is likely to see a move through 1.3000 towards 1.3300 in the coming weeks.
The euro also got a lift after EU core CPI jumped sharply in April from 0.7% to 1.2%, its highest level since July 2013, and less than 24 hours after ECB President Mario Draghi stated that core prices were expected to rise gradually over the medium term. The euro and bund yields jumped sharply in the aftermath of these numbers, with the euro retesting this week’s highs against the US dollar.
If this trend continues expect further splits on the governing council as northern European members start to peel away from the consensus we saw yesterday, and talk of an ECB taper starts to gain further ground.
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