Forex: GBP/USD eases despite fastest UK growth in six years

on Jan 28, 2014
Updated: Oct 21, 2019

**, Tuesday 28 January:**

The pound has been weakening so far today, even though data released earlier showed that Britain’s full-year GDP growth for 2013 jumped to 1.9 percent from 2012’s 0.3 percent. But while it’s the fastest pace since 2007, total economic output is still 1.3 percent below the pre-financial crisis peak, a weaker situation than in almost all other major advanced economies.

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Right now, the GBP/USD is trading at around 1.6550, down 0.15 percent intraday and well below the day’s ongoing high of 1.6625, reached just before the release.
The UK’s gross domestic product for the last quarter of 2013 expanded by 0.7 percent q/q, according to the initial estimate of the Office for National Statistics. The prior quarter showed growth of 0.8 percent q/q.

Although the reading came in at consensus, the Bank of England had thought that growth had been closer to 0.9 percent during Q4. The markets may thus see the GDP report as providing the BoE with more scope for dovishness with rate hikes, recalling the recent observation of BoE governor Mark Carney that “the [UK economic] recovery has some way to run before it would be appropriate to consider moving away from the emergency setting of monetary policy”.

This evening UTC sees the start of the Federal Open Market Committee’s scheduled January meeting. The meeting concludes tomorrow with the official statement of the Committee’s decision scheduled for 19.00 UTC. The FOMC is widely expected to trim its quantitative easing programme by an additional $10 billion, bringing monthly purchases down to $65 billion and keeping the central bank on course to halt bond-buying by the end of this year.

Analysts at Scotiabank believe that, although over time the winding down of US quantitative easing “is likely to support the USD”, for now a reduction of $10 billion “is well priced in”.
The US economic calendar today has December’s Durable Goods Orders report at 13.30 UTC and the CB Consumer Confidence print for January at 15.00 UTC.


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