The British economy is still struggling and grew by only 0.5% in the first quarter of 2011. This is within the official expectations for a growth rate of 0.5%, but early hints have contributed to lowering expectations so GBP/USD is rising now.
The initial release of Britain’s GDP for the first quarter showed a rise of 0.5%. This is within expectations. GBP/USD is now challenging the 1.6515 line, after leaping from the are of 1.6450 before the release.
Update: The pair has broken above the 1.6515 line, currently trading at 1.6532. Next resistance is at 1.66.
The fourth quarter of 2010 was terrible in Britain – the economy unexpectedly contracted by 0.5%, against all expectations for growth at the same scale. This shrinkage was blamed on severe weather during the reported period, but even without the bad weather, the economy would have stalled.
Towards the current release, there were fears that also the first quarter would see contraction. Two consecutive quarters of contraction, of squeezing economic activity are officially defined as a recession – a double dip recession.
The UK’s Chancellor of the Exchequer, George Osborne, hinted that the figure might be disappointing. While he said that the economy is “on track†for a recovery, he hinted that the road is rough. This contributed to an early drop of the pound towards the release.
GBP/USD traded around the 1.6450 line before the release. This turned into a line of support after being broken last week. 1.6515 worked as an excellent cap – the fall towards the release began from this line.
Further levels below are 1.64, 1.63, 1.6110 and 1.60. Above we find 1.66, 1.67, 1.6843 and 1.7040. For more technical analysis and upcoming events, see the GBP/USD Forecast.
In other British news, the British Bankers’ Association release its mortgage approvals figure. It exceeded expectations with 31,700 approvals, better than 30,600 that was predicted. The housing sector has been one of the country’s biggest problems.
A stable growth rate might make Mervyn King and the other reluctant members of the MPC to raise the rates in order to fight inflation. CPI fell to an annual pace of 4% in the last report. This is still high. With a more robust economy, rate hikes might come sooner than later. Expectations currently stand at a hike in June or July.
The markets are awaiting today’s historic press conference by Ben Bernanke following the rate decision. The big question is whether Bernanke will provide a clear signal to the end of QE2, talk about further easing or find some kind of middle ground. Every facial gesture from the Chairman will be closely watched.
So,any move of GBP/USD following the news will be relatively limited. Normally, a GDP release would have an even stronger effect, but this one is somewhat subdued due to the wait for Bernanke.
