UK GDP meets expectations, pound sterling unaffected
Thursday marked the release of one of the week’s most highly anticipated readings, as National Statistics reported on UK second quarter GDP. Investors were optimistic the UK’s gradual recovery over the past few months would translate into a higher GDP reading this quarter, and would build off first quarter growth. UK GDP met expectations Thursday, growing at double the rate of the first quarter. The British economy expanded 0.6 percent over the second quarter, the highest growth rate in three years. The year-on-year GDP rate of 1.4 percent was also in-line with the consensus. Thursday’s release also marked the first time in two years GDP grew two consecutive quarters in a row, a positive sign for an economy still struggling with its worst downturn in nearly a century.
Pound pairs were largely unaffected by the news, signalling perhaps the market feels there is more downside potential in the pound. The EURGBP extended its earlier momentum into Thursday’s European session, where the pair reached 0.8644 before consolidating at 0.8625 in the New York trade (+0.07 percent). The euro’s fortunes took a positive spin Wednesday when German and Euro zone PMI exceeded expectations. German services PMI was 52.3, beating expectations by 1.5 points. With a reading of 50.3, German manufacturing PMI beat expectations by 0.9 points, signalling improving business conditions in the country’s manufacturing industry. For the broader Euro zone, services and manufacturing PMI beat expectations by 0.9 points respectively.
The pound managed to take advantage of broad US dollar weakness following the release of disappointing US jobs data. Initial jobless claims for the week ended July 19 were 3,000 higher than forecasted, showing a reading of 343K. The pair treaded water in the European session before climbing more than a quarter percent in the New York trade to reach 1.5355. Over the past five days the pair has advanced 1 percent on the back of upbeat UK figures.
The UK is expected to face strong headwinds in 2014, as high unemployment continues to mark the Kingdom’s economic landscape. Economic growth is expected to resume for the rest of the year, but could slow considerably in 2014. Over the next few months all eyes will be on new Bank of England Governor Mark Carney, who is expected to be active in spearheading Britain’s recovery.
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