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Pound stays strong, UK GDP beats expectations

05/12/2021 04:27
Pound stays strong, UK GDP beats expectations

Graphic: World FX rates in 2020 http://tmsnrt.rs/2egbfVh

Graphic: Trade-weighted sterling since Brexit vote http://tmsnrt.rs/2hwV9Hv

- The pound held steady above $1.41 on Wednesday after UK GDP data for March beat market expectations, keeping investors optimistic about the UK's economic recovery from the pandemic.

Sterling jumped to a two-month high on Monday this week due to a combination of dollar weakness, market relief over Scottish election results, lockdown easing measures, and the Bank of England raising its forecast for economic growth. nL1N2MX0ENnL8N2MT5IS

It has held on to these gains since then, reaching as high as $1.4167 on Tuesday, and was at $1.4147 at 0752 GMT on Wednesday, up 0.1% on the day GBP=D3.

Versus the euro it was up 0.1% at 85.84 pence per euro, close to its strongest in a month EURGBP=D3.

Britain's economy grew by a stronger-than-expected 2.1% in March from February, gathering speed for what is expected to be a sharp bounce-back this year after its deep coronavirus slump of 2020. nL8N2MZ209

Although analysts said the data's immediate market impact was limited by the fact that it referred to a period when stricter lockdown restrictions were still in place, it helped support the market expectation for a strong recovery in the UK.

"The data today is consistent with a positive outlook for the pound," MUFG head of research Derek Halpenny said in a note to clients.

"GBP has underperformed in Q2 to-date, being the 2nd worst performing G10 currency. We see scope for catch-up with the markets concluding the BoE outlook is too pessimistic leading to sooner taper speculation and the prospect of short-term rates drifting further higher, helping support GBP."

The Bank of England slowed the pace of its trillion dollar bond-buying programme on Thursday, but stressed it was not reversing its stimulus. nL8N2MT5IS

Separate trade figures on Wednesday showed Britain imported more goods from non-EU countries than EU countries during the first quarter for the first time since records began in 1997. nL8N2MZ209

"The bottom line is that there will continue to be a slow-burning impact of new trade frictions on the UK economy, even if the immediate teething problems have passed," James Smith, developed markets economist at ING, said in a note.

Prime Minister Boris Johnson confirmed on Monday that some lockdown restrictions in England will be eased on May 17, as part of a four-step plan to bring the country out of lockdown by the summer. nL8N2MX153


(Reporting by Elizabeth Howcroft)

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