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25 Apr 2013
Forex Flash: The UK is the first G7 country to report Q1 GDP - BBH
FXstreet.com (Barcelona) - Brown Brothers Harriman analysts note that looking towards UK GDP, the market had been prepared for a +/- 0.1% reading, and the upside surprise of a 0.3% expansion sent sterling to almost $1.5450, the highest since February 20.
They adds that this area also corresponds to a retracement objective of sterling's slide since the start of the year. That said, they see that the failure to finish the North American session today above $1.54 would be disappointing and would fail to confirm the upside breakout. Further, many observers will see in the UK's GDP report evidence that it has avoided a triple dip. This is, they think, not a very helpful way to conceptualize what is happening in the UK. After all, the two-consecutive quarterly contraction is a rule of thumb, and frankly is not even the definition used in the United States. They write, “For all practical purposes, the UK economy has essentially stagnated. It remains in a trough. Output is about 2.8% below the Q1 2008 peak. The stronger than expected GDP figure, which offsets the 0.3% contraction in Q4, may give the UK government's resolve to stay on the austerity course, despite the increasing pressure from the IMF to do otherwise. It also means that BOE Governor King, having been outvoted on the MPC, may not win over many converts to his desire to resume gilt purchases.”
They adds that this area also corresponds to a retracement objective of sterling's slide since the start of the year. That said, they see that the failure to finish the North American session today above $1.54 would be disappointing and would fail to confirm the upside breakout. Further, many observers will see in the UK's GDP report evidence that it has avoided a triple dip. This is, they think, not a very helpful way to conceptualize what is happening in the UK. After all, the two-consecutive quarterly contraction is a rule of thumb, and frankly is not even the definition used in the United States. They write, “For all practical purposes, the UK economy has essentially stagnated. It remains in a trough. Output is about 2.8% below the Q1 2008 peak. The stronger than expected GDP figure, which offsets the 0.3% contraction in Q4, may give the UK government's resolve to stay on the austerity course, despite the increasing pressure from the IMF to do otherwise. It also means that BOE Governor King, having been outvoted on the MPC, may not win over many converts to his desire to resume gilt purchases.”