GBP/USD Forecast: UK Growth Slowing, GBP Risks Remain Lower

[MongiIG]

GBP/USD PRICE ANALYSIS & NEWS

• UK GDP Contracts In March
• GBP/USD Risks Remain Lower

UK Q1 GDP RECAP

UK GDP Q4 Q/Q: 0.8% vs Exp. 1.0% (Prior 1.0%) Mar M/M: -0.1% vs Exp. 0.0% (Prior 0.1%)

UK GDP for the first quarter came in below expectations across the board, with the quarterly figure rising 0.8% (Exp. 1.0%). While the March reading showed a surprise contraction of 0.1%. Given last week’s Bank of England monetary policy report, this further compounds their view that growth will materially slow down throughout the year, highlighting the stagflation risks that the UK economy is facing. What’s more, with the cost of living squeeze now more prominent, growth will take a bigger hit in Q2. In reaction to the data, the Pound saw a marginal drop, dipping below the 1.2200 handle before quickly retracing. However, with risk appetite remaining sour, the path of least resistance is lower GBP.

On the technical front, there is little in the way of support until 1.2073 (May 2020) with the 1.2000 handle below. Meanwhile, resistance resides at 1.2400. The bias remains to fade on rallies for GBP/USD. Elsewhere, upside risks remain for EUR/GBP as ECB Officials talk up the potential for a July rate rise. As well as the fact that the Pound has a higher beta to equity markets, making the currency more vulnerable when equities sell-off.

GBP/USD CHART: DAILY TIME FRAME

Source: Refinitiv

 

May 12, 2022 | DailyFX
Justin McQueen, Strategist