The health of the nation’s economy will be laid out today with the release of preliminary Q4 Gross Domestic Product (GDP) figures. With good summer weather bolstering the Q3 reading, a quarter-on-quarter downturn from 0.6% to 0.3% is expected. Brexit woes are dragging on the UK’s economic growth, and two consecutive quarters of GDP contraction officially count as a recession. Such an event would trigger calls for the Bank of England (BoE) to stimulate the economy through interest rate cuts or corporate bond buying, moves that would typically weigh on the Pound.
The US Dollar has been drifting higher, pushing the DXY Dollar index out to its highest levels since the start of the year. The Federal Reserve may have made it clear that interest rate hikes won’t be seen any time soon, but it’s the Dollar’s safe-haven appeal that is driving gains as fears mount over global economic growth. The US-China trade deal is also making slow progress and questions are being asked as to whether talks can conclude before tariff increases arrive on March 2nd. The Pound is already beaten down against the US Dollar, but currencies such as the Euro may be vulnerable to further selling pressure if the flight to safety continues.
The Pound is holding steady against the US Dollar, as the market waits for fresh signals. With Brexit front of mind and the UK GDP release set for this morning, either economic or geopolitical factors could come into play.
The Euro is continuing to sell off against the US Dollar, as has been the case since the start of the month. The currency is vulnerable to selling pressures from broad safe-haven demand and also has the potential to lose from a disorderly Brexit.
After Thursday’s Bank of England inspired volatility, the Pound has made little progress against the Euro, with markets lacking any clear direction. Today’s GDP release has the potential to be instrumental in delivering the next move for Sterling.