UK 3 Q GDP data beat the expectations handily but cable couldn’t hold the rally selling off nearly 50 points off the highs in post news reaction to the release.
UK GDP printed at 0.5% versus 0.3% eyed as the preliminary reading suggested that the economy continued to expand at a healthy pace despite the looming threat of Brexit. According to the ONS, “In Quarter 3 2016, the services industries increased by 0.8%. In contrast, output decreased in the other 3 main industrial groups with construction decreasing by 1.4%, agriculture decreasing by 0.7% and production decreasing by 0.4%, within which manufacturing decreased by 1.0%”.
Tonight’s figure represents about half the actual data, so the GDP numbers could be subject to significant revisions later on. Still the data suggests that the feared slowdown in the wake of the Brexit vote has not yet materialized and UK Finance Minister Hammond was quick to note that the news showed the resilience of UK economy.
The markets however remained skeptical of the news with cable quickly reversing its gains in the wake of the announcement as traders took their profits and sent the unit back towards the 1.2200 figure. The GDP figures really do not mean much in the grander scheme of things as UK has yet to trigger the Article 50 resolution. Therefore the data reflects the fact that UK economy remains within the Eurozone under a much weaker currency regime which makes it more competitive in the near term.
The GDP figures shed no light on how the UK economy would perform under the “hard Brexit” scenario and therefore sentiment towards cable remains negative. Still GBPUSD appears to have found support at the 1.2100 level and therefore could be setting up for a short covering rally. If the pair can hold the 1.2200 level going into New York trade it may make another run at the 1.2300 figure as the day proceeds.
As to North American trade it’s another day of quiet calendar as US docket only has Durable Goods, weekly jobless claims and Pending Home sales. USDJPY has remained surprisingly well bid this week and if today’s data provides any positive fuel it could make a run at the psychologically critical 105.00 level as consensus on the Fed rate hike in December continues to build.