The health of the UK economy in question ahead of GDP release
The United Kingdom economy releases monthly GDP data later today, at a time when a survey of leading economists is now predicting that the UK economy contracted during the second quarter of 2019. Monthly GDP data is expected to show the UK economy grew by 0.4 percent during the month of May, which may help to allay financial markets worst fears.
A rebound in UK GDP may be helpful to sterling, as the British pound is currently trading at its weakest level against the U.S Dollar since April 2017. The last monthly GDP data from the UK showed that the economy had shrunk by a shock -0.3 percent, underscoring the precarious position the post-Brexit UK economy currently finds itself in.
Business uncertainty, dwindling overseas investment and a sharp decline in the manufacturing and service sectors have led to UK economic conditions deteriorating. The flagship UK financial sector has also been hit particularly hard by jobs losses and uncertainty, as institutions relocate to other European cities, such as Paris and Frankfurt.
Aside from today’s monthly GDP release, Brexit negotiations are likely to be the upcoming focus for traders and investors once the Conservative party leadership battle is officially decided. It appears extremely unlikely that the EU will offer any concessions to the new British Prime Minister, leaving the prospect of UK lawmakers suspending Parliament, due to a possible Brexit no-deal.
In the more immediate-term, the UK economy is releasing a raft of high-impact macroeconomic data points next week, including wage, employment, retail sales and borrowing figures. UK retail sales may be the most highlight anticipated amongst the bunch, following the -0.5% contraction in retail sales in May.
The overall pessimism towards the United Kingdom economy has dragged the GBP/USD pair below the 1.2500 level, while recent strength in the greenback is another side of the short sterling trade. In order for the GBP/USD pair to start to recover, weakness in the United States economy would need to re-emerge, particularly in the U.S jobs market.
EUR/GBP Mountain Chart | Source: ActivTrader
The EUR/GBP long trade is also becoming increasingly interesting to observe, with price close to a major breakout above the 0.9000 resistance level. Both currencies remain fairly weak, although the euro has the been gaining against the British pound as UK data points sour. Key resistance for the pair is now found at the 0.9040 and 0.9115 levels, while key support is found at the 0.8960 and 0.8910 levels.
Written by Nathan Batchelor, External Analyst, ActivTrades
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