There is no trade call today as we look to UK Preliminary GDP for a potential trade in the pound. Take a look a my weekly risk events overview here if you want to learn more about interpreting event’s data.
UK Preliminary GDP
Due: 9:30am BST
Office for National Statistics
Gross Domestic Product measures the change in the inflation-adjusted value of all goods and services produced by the economy. It’s the broadest measure of economic activity and the primary gauge of the economy’s health. There are 3 versions of GDP released a month apart; Preliminary, Second Estimate, and Final. The Preliminary release is the earliest, thus tends to have the most impact.
Sterling holds its rank as equally the most bullish currency, along with the greenback. This is due to expectations for a rate hike approximately during Q2 2016. In recent weeks and months sentiment on GBP has turned more bullish as members of the BOE have made hawkish remarks regarding the timing of interest rate hikes. Average earnings have been excellent yet the weakest link remains inflation. Once CPI starts to convincingly track higher we will see more strength in the GBP. There is currently a risk that the BOE may move earlier than the market currently expects and this would cause more strength in sterling as the market re-adjusts to any sooner rate hike expectations. Whether the BOE do hike earlier than Q2 2016 will depend on tier one data points – and UK Preliminary GDP is one of them. The market will be watching this release carefully to see if growth picked up in the second quarter after most developed nations saw a lacklustre Q1.
Expected Market Reaction:
UK Preliminary GDP release has the potential to move the pound significantly in either direction, and a large deviation may create sentiment which persists for several sessions. A number of 0.8% or above for the Q/Q reading will see GBP rally and this will match long term positioning. Conversely, a miss of 0.4% or below will see pound fall from its currently lofty levels. Given the rally in pound of recent weeks, a poor number may elicit an aggressive and sustained move lower as long positions are closed. A poor number would also be focussed on in the context of last week’s poor retail sales.