GDP Data Hammers Sterling

The GDP data will be a big jolt to market sentiment as markets had expected a positive figure. There will be some fresh speculation that there will be an expansion of quantitative easing at the November meeting which will tend to weaken sentiment. There will still be a high degree of uncertainty over the situation which should help stem selling to some extent. Nevertheless, the UK will be seen as the weakest major economy with rallies still attracting selling pressure quickly. On a near-term view, Sterling has potential for support near 1.6300 against the dollar.

There will continue to be a high degree of uncertainty over the November policy outcome which will maintain the risk of volatile Sterling movement. Nevertheless, the majority view is likely to be that the bank will leave policy on hold in November which should provide initial currency support.

There was a weaker bid/cover ratio in the latest gilt auction which will raise dome concerns over the level of overseas demand for UK bonds. Nevertheless, Sterling found support on dips to below 1.65 against the dollar and rallied back above 1.66 in New York. The UK currency held firm on Friday ahead of the GDP release with markets expecting a return to growth in the latest data.

In the event, the data was much weaker than expected with a further 0.4% contraction for the third quarter which kept the economy in recession. The data pushed Sterling sharply weaker with a slide to 1.6425 against the dollar.

Investica
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