UK GDP shows surprise uplift, but GBP gives back gains

[MongiIG]

The downward pressure on GBP/USD remains despite UK gross domestic product (GDP) climbing 0.5% in May (estimates were 0.0%) and industrial production in June climbed 1.4% (estimates - 0.3%).

 

 

 Jeremy Naylor | Writer, London | Publication date: Wednesday 13 July 2022 

Hawkish UK data

There's been some interesting hawkish data coming out of the UK economy today. We've seen industrial production and gross domestic product (GDP) both grow surprisingly fast, given the expectations.

Let's take a look at the figures because the UK GDP number was interesting, with the latest data showing upward revisions across many sectors. But, the Office of National Statistics say growth was fueled by booming holiday bookings, which is ironic given the fact that we've now got British Airways and indeed Heathrow saying it can't take any more bookings over the summer.

There has also been a large rise in GP appointments, which apparently adds to the GDP figure. As the COVID vaccination program winds down, people are going to GPs more often and presumably buying more product as a result of that across the counter.

Now this rise of half of 1% compares favourably to estimates in March, a rise of 0.1% and a negative 0.2% in April. Industrial production, you can see that at 1.4% in May year-on-year. Consensus had been for a drop of 0.3%.

EUR/GBP chart

I want to show a couple of interesting charts.

This is sterling against the euro. I'll look at the longer term picture of this in just a minute. These are 30-minute candles and you can quite clearly see here the point at which the GDP number and the industrial action figure came out subsequent to that. We have seen a pullback as of the time of recording.

We've got industrial production across the eurozone in just a short while, but that's unlikely, I think, to change the direction of travel here, which remains up. And you can see this on the single daily candle chart here. But we're well off the highs today at 11854, sterling has recovered at the expense of the eurozone's euro, which is in all sorts of deep water at the moment.

GBP/USD chart

This is turning against the US dollar - same sort of price action. We saw it rise during a GDP and industrial production release, then a pullback. And as a result of that we've got this sort of price action we've got here at the moment.

But in the last couple of days we have seen sterling hit levels not seen since the beginnings of the recovery from the COVID lows. So sterling is still under a lot of pressure. It's on the way up today as a result of this data, but the longer term pressure remains.