Pound buoyed as data paints rosy picture of UK economy

A bumper supply of above-forecast economic data from the UK helped the pound to recover some of the week’s earlier losses on Friday.

However, the pound has slumped this morning thanks to fears of a leadership challenge against Prime Minister Theresa May. The GBP/EUR exchange rate has fallen half a percent to €1.1249, while GBP/USD is down -0.7% to US$1.3094. The pound is down -0.6% against the commodity trio, with GBP/AUD at A$1.7116, GBP/NZD at NZ$1.8920, and GBP/CAD at C$1.6631.

Read on to find out just why the pound was in such a happy mood last week…

What’s been happening?

The pound made respectable gains at the end of the week versus the euro and US dollar, thanks to a run of largely positive UK economic data.

Industrial and manufacturing production posted a much larger uptick in growth on the month than economists had predicted for September; both rose 0.7% instead of the forecast 0.3%.

Year-on-year industrial output picked up to 2.5% instead of the 1.9% expected, while manufacturing output slowed just 0.1% to 2.7% instead of to 2.4%.

August’s trade deficit was revised notably lower, meaning that the shortfall narrowed significantly to -£2.75 billion instead of clocking in at -£4.3 billion in line with projections.

Further adding to the good news, the latest GDP estimate from the National Institute for Economic and Social Research (NIESR) showed an acceleration of growth in the three months to October from 0.4% to 0.5%.

A relative lack of Eurozone data gave the euro little reason to resist the pound’s appreciation. French industrial production bettered expectations, but other than that there was little to affect sentiment.

Meanwhile GBP/USD was helped to advance by an unexpected weakening in the University of Michigan sentiment index, which fell from 100.7 to 97.8. This, combined with fears that Donald Trump’s ambitious plans to cut corporation tax may not be implemented as quickly as hoped, kept the US dollar on weak form.

What's coming up?

It’s a very quiet start to the week, and with a much busier data calendar tomorrow for the UK and the Eurozone the pound and euro could struggle to find support as markets await the outcome of the day’s high tier data.

The UK will release its next set of inflation data, while from the currency bloc we can expect German, Italian and Eurozone GDP for the third quarter, the ZEW economic sentiment survey, and a speech from European Central Bank (ECB) policymakers including President Mario Draghi.

The US data calendar will remain quiet again in terms of economic reports as well tomorrow, but four members of the Federal Reserve - including Chair Janet Yellen - will give speeches, which could create some excitement or trepidation ahead of next month’s monetary policy meeting.

We’re here to talk currency whenever you need us, so get in touch if you want to know more about the latest news or how it could impact your currency transfers.

Reaz Rahman
Senior Dealer

Reaz, our Senior Currency Dealer, joined us in January 2015. Reaz draws on his detailed knowledge of the foreign exchange markets to help customers to choose the right service and time to transfer.