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Recession concerns intensify as UK GDP contracts in March


ArvinIG

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The pound continues to lose ground against the US dollar as risk-off sentiment intensifies in the markets, with the latest GDP release from the UK adding further fuel to the fire.

 
 

The March GDP figure shows a month-on-month contraction in the economy, playing into the recession warning signs the BoE offered at last week’s meeting.

(Video Transcript)

GBP under pressure

The latest data from the UK has done little to help aid the pound's pressure we've seen over the last few days.

The latest economic readings show a contraction in the month-on-month growth rate in the month of March, with that first quarter GDP coming in at 0.8%, below those forecasts of 1%.

Industrial production rose to 0.7% in March, that is better than those expectations of 0.5%, but the trade deficit has deepened to £11.55 billion.

GBP/USD chart

Let's take a look at a chart of the pound against the US dollar, because we've been tracking this trade over the last few weeks, definitely since we saw this drop below $1.30 here at the end of April.

We know that Bank of England (BoE) meeting on Thursday really hurt the pound in the short-term, seeing those concerns about economic growth coming from the BoE, from Andrew Bailey there.

The data that we've seen this morning has justified those concerns, showing that, yes, in fact, growth is stalling in the month of March, showing that recession in the monthly figure and expecting that recession to now deepen into the third quarter of the year.

So, that's definitely pricing into the pound, that negativity, also that overall bearish sentiment that we have in the markets, flying to safety, heading into the US dollar and not helping the pair.

The end in sight?

Is there any end in sight in the short-term? Well, it doesn't look like it at the moment. The RSI is showing those bears in control and so are those moving averages, and the way we're seeing these technical patterns in the daily candlestick continue to show that sellers are coming in.

We're struggling to find momentum bringing the pair up in the short-term. Yes, we saw it in yesterday's trade, we actually headed above the high that we saw on Tuesday, heading towards that high on Monday, quickly reversing to the downside and nicely painting a lower low sequence once again.

That's probably what sellers are focusing on now, bringing that pair down in the short-term, heading towards this 76.4% Fibonacci here at $1.2080, which is likely to be hit in the next few days if we continue to see this bearish sentiment in the pound against the US dollar.

Daniela Sabin Hathorn | Presenter and Analyst, London
13 May 2022

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