The GBP/USD cross is up to 1.223 at time of writing, having twice dipped below 1.22 in late trading yesterday. The press is attributing this mini-rally to the release of monthly GDP data at 09.30. While UK GDP fell 0.1% mom in August, as a result of a contraction in manufacturing activity, GDP in June-August still rose 0.3% qoq which in turn reduces the odds that GDP contracted in Q3 and that the UK economy was in recession.
But this analysis is arguably flawed on three levels. First, GDP/USD had already inched up above 1.224 before the ONS released its monthly GDP data so if anything the cross has moved a bit lower since the data release. Second, the up-tick in GBP/USD owes to Dollar weakness, not Sterling strength. Indeed all major currencies have appreciated against the Dollar in today’s session, with Sterling actually underperforming – GBP/EUR, for example, is trading below 1.10 for the first time since 4 September. Finally, the June-August GDP numbered were flattered by the 0.4% mom increase in GDP in July while monthly PMI data point to very weak GDP growth in September. The bottom line is that UK GDP growth was likely anaemic in Q3despite having contracted 0.2% qoq in Q2.
Sterling did catch a break enjoying a late-afternoon boost yesterday, after prime minister Boris Johnson and Irish Taoiseach Leo Varadkar said in a joint statement that there was a “pathway to a possible [Brexit] deal”. GBP/EUR rallied to 1.1344 and GBP/USD nearly hitting 1.25.
