A surprising 4Q GDP report from Britain showed the British economy actually contracted. In response the pound sold off sharply as traders adjust their expectations for Bank of England interest rate moves.
At lunch time during the European trading session, the GBP/USD was down at 1.5760 after opening the day at 1.6004. The EUR/GBP was up sharply at 0.8620 from 0.8533, while the GBP/JPY was down at 1.29.98 from 131.89.
The disappointing GDP data came as a surprise to the market as economists had forecasted a rise in 4Q GDP of 0.5%. Instead the British economy actually contracted by 0.5%.
Following the negative economic data, traders sold the pound after exiting positions that were taken following a change in British interest rate expectations. Prior to today, the market had been pricing in a 0.25% bump up in British interest rates by the BOE in order to stem inflation. As this trade unravels, the pound should continue to decline.
The GBP/USD has moved below its 100-day moving average and is continuing to decline. The next support for the pair is the 1.5660 level. A breach below this support would target the December low of 1.5340.
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Russell Glaser is a Currency Analyst with ForexYard. Russell provides analysis in the FX spot market by employing fundamental research methodologies. In addition to currencies, Russell closely follows the correlation between the Commodities market and the movement of equities. His writings have been published on the ForexYard Trading Blog and associated partner sites. Prior to joining Forexyard, Russell Glaser served as a management consultant in the financial services industry, advising Fortune 100 companies. Russell holds a degree in finance from the Fisher College of Business at The Ohio State University.
