Sterling gives in to dollar strength after UK GDP data

Sterling slips vs. USD, gains vs. EUR

Pound sterling slipped on Thursday as data confirmed the UK economy fell into recession in the latter part of last year, while the dollar showed broad strength as the month and quarter drew to a close.

Currency markets this week have been largely influenced by speculation surrounding potential intervention by the Bank of Japan to prop up the yen, which has plummeted to its lowest level against the dollar since 1990. USD to JPY was largely stable at 13:30 GMT, trading at 151.33.

Sterling saw a modest decline of 0.07% ahead of crucial U.S. inflation figures due on Friday. Meanwhile, it made gains against the euro, with the EUR to GBP pair trading at 85.55 pence, indicating a fall of 0.14% for the euro.

The pound also weakened against the yen, slipping 0.24% to 190.79 yen after reaching its highest point against the Japanese currency since August 2015 earlier this week.

The U.S. dollar index (DXY) — a gauge of the greenback’s strength against six major counterparts — was last up 0.08% at 104.43.

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Largest UK utility Thames Water faces new crisis

In corporate news, Thames Water, the UK's largest utility company, encountered fresh challenges as shareholders said they would not offer further funding.

UK Finance Minister Jeremy Hunt assured that the government would monitor Thames Water “very carefully” and said the company was still financially solvent, reiterating that last year's readiness for any contingency, including temporary state ownership, remained unchanged.

These developments, however, had little direct impact on the pound on Thursday, as per Reuters correspondent Amanda Cooper.

GDP data confirms UK recession in H2 2023

According to the Office for National Statistics, UK GDP contracted by 0.1% in the third quarter and 0.3% in the fourth quarter, aligning with initial estimates.

Despite these figures reflecting a mild UK recession late last year, they did not trigger significant fluctuations in the pound or alter expectations for monetary policy.

BoE nod at rate cut prompts UK government bond rally, undermines GBP

The Bank of England's recent indication of a potential interest rate cut prompted a rally in UK government bonds — but undermined sterling. Two-year gilts, which are particularly sensitive to rate expectations, have dropped by 25 basis points in March, marking their first monthly decline since November.

As per data cited by Reuters, futures markets suggest traders perceive approximately a 20% likelihood of an interest rate cut at the Bank of England’s next policy meeting in May, although the meeting in June remains the most probable timing, with a 55% probability.

GBP forecast: Scotiabank says GBP/USD needs gains through 1.265 resistance for “additional lift”

Scotiabank Chief Currency Strategist Shaun Osborne outlined his GBP forecast in a comment on Thursday. Osborne’s estimation for the BoE interest rate cut was August:

“Markets continue to reflect the expectation that the BoE will hold off until August before easing. Rate expectations are perhaps providing the GBP with a bit of a cushion against the USD’s advance.

Sterling has rebounded modestly from the earlier session low. The GBP/USD pair based around 1.2590/1.2600, effectively a retest of the 200-Day Moving Average where Cable has found support in the recent past.

Gains through 1.2640/1.2650 resistance are needed to give the GBP an additional lift from here, however”.

When considering shares, indices, forex (foreign exchange) and commodities for trading and price predictions, remember that trading CFDs involves a significant degree of risk and could result in capital loss.

Past performance is not indicative of any future results. This information is provided for informative purposes only and should not be construed to be investment advice.