Daily Market Report - 12/05/2022
Weak GDP data - UK economy shrinks
GBP/USD is trading below 1.2200, refreshing a two-year low after the UK GDP QoQ rate missed estimates with 0.8% in Q1, justifying the Bank of Englands dire outlook on the economy, which was made public at their MPC meeting last week. The results showed that activity fell by 0.1% after flatlining in February – an even weaker performance than economic experts had been predicting – with spending in shops suffering particularly badly.
The chancellor, Rishi Sunak stated: “The UK economy recovered quickly from the worst of the pandemic and our growth in the first few months of the year was strong, faster than the US, Germany and Italy, but I know these are still anxious times.”
The GDP is considered as a broad measure of the UK economic activity. Generally speaking, a rising trend has a positive effect on the GBP, while a falling trend is seen as negative. As a result of these underwhelming figures and the continued strength of the US Dollar in a risk off market mood, cable has been heavily impacted and we have seen the rate fall off over a 1% from Wednesday evening.
The UK economy is expected to slow sharply over the remainder of 2022 and into 2023 as the UK experiences a surge in inflation, punishing consumers and hitting business margins.
Additionally, the dollar hit a two -decade high on Thursday after U.S. inflation moderated less than markets had expected, keeping the Federal Reserve on course to tighten policy aggressively
Looking at GBP/EUR, we are currently trading at 1.1664 following the poor GDP UK figures and a hawkish ECB. Multiple European Central Bank (ECB) officials, including President Christine Lagarde and Vice President Luis de Guindos have flagged fears of inflation while also fueling calls for the July rate hike, which has given the Euro some much needed support following a slow start to the week where it under performed most of it's G10 peers.
EUR/USD is trading lower near 1.0452, down 0.57% on the day, as the US dollar extends its post-US CPI upside amid a downbeat risk tone. Markets continue to remain worried over higher inflation and growth risks and despite the Hawkish ECB, it hasn't been enough to underpin the safe haven Dollar.