GBP/USD Pulls Back Despite Surprise in GDP Data
FxPro Financial Services Ltd | Jan 13, 2023 08:38AM ET
Britain, as previously with mainland Europe, is showing better than expected GDP performance, tempering expectations on the depth and duration of the looming recession.
Monthly GDP estimates showed an unexpected growth of 0.1% in November after 0.5% in October, markedly better than the 0.2% contraction that had been expected.
This was driven by a better-than-expected service sector performance, representing the lion's share of the UK economy.
Construction also held off a decline in November, but the annual growth rate slowed to 4.0% compared to 5.9% a month earlier.
However, things are deteriorating in the industry. Industrial production has fallen for 8 of the last ten months. Although the rate fell markedly in the previous quarter, activity in November was 5.1% lower than a year earlier.
The manufacturing sector is losing 5.9% YoY, holding around this rate since July. Although industry contributes less than 10% to the country's GDP, the dynamics of this sector are often ahead of the business cycle, being the first to take the hit when economic conditions deteriorate.
Initially, the market reacted to the monthly data release by buying the pound, pushing the FTSE 100 to its highs for the year and only 0.7% from its historic peak in mid-2018.
However, markets soon retraced the gains, which fits well with the desire to lock in some profits after the impressive progress of the past two weeks.
GBP/USD pulled back to 1.2175, despite the ‘golden cross’ formed two days ago (the 50-day MA overcame the 200-day MA).
Despite the bullish signal, the pound exchange rate and British asset prices remain vulnerable to short-term pullbacks without breaking the upward trend.
We cannot discuss breaking the trend until GBP/USD falls below 1.1900. However, it is more likely that a short-term correction into the 1.2000-1.2050 area will be followed by renewed buying after a short-term shakeout.
Get The News You Want
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.