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Sterling Left Shaken By Dovish 5-Year Low Q1 GDP Data

Published 27/04/2018, 12:21

Sterling was severely shaken by the UK’s first quarter GDP reading, a troublesome figure made all the worse by the fact that the ONS warned March’s Beast from the East – a potential get out of jail free card for Q1’s abysmal growth – actually had ‘very little impact’ on the slowdown.

At a 5 year low of just 0.1% the GDP figure for the first 3 months of 2018 undershot the already weak 0.2% to 0.3% forecasts held by analysts. This immediately dealt a rather sizeable dovish blow to sterling, with a May rate hike from the Bank of England going from a near certainty at the start of the month, to a toss-up following Mark Carney’s comments last week, to now an almost complete dead end.

The shock of all this sent cable 0.9% lower, forcing sterling below $1.38 for the first time since the start of March – remember, it was only 10 days ago that the pound had climbed to a post-Brexit peak against the greenback, its decline across the second half of April tracking the gradually eroded likelihood of a May hike. Even with the euro’s own central bank issues, meanwhile, sterling dropped 0.8%, erasing the week’s €1.15-teasing growth in one fell swoop.

The FTSE using sterling’s stress-out to propel itself to a fresh 12 week high, surging 0.7% to cross 7470. The eurozone indices appeared similarly happy that the euro lost more ground to the dollar, with the single currency dropping below $1.21 for the first itme since mid-January; this allowed the DAX to jump above 12600 with a 100 point climb, while even the GDP-disappointed French CAC managed to eke out a 0.2% increase.

Turning to this afternoon and both the pound and the euro will be hoping the dollar gets a taste of its own medicine following the US Q1 GDP reading. Analysts are expecting a rather sharp decline between the fourth and first quarters, with forecasts pointing to a drop from 2.9% to 2.0% (at the annualised rate). The Dow Jones could also do with the greenback losing some of its gumption given that the futures have the index slipping under 24300.

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