The advanced GDP reading for the U.K. is expected to reinforce fears of a deepening downturn in the region as economists forecast the growth rate to fall 1.5% in the first quarter, and conditions are likely to get worse as the HM Treasury forecasts the economy to contract 3.5% this year.
Trading the News: U.K. Gross Domestic Product
What’s Expected
Time of release: 04/24/2009 08:30 GMT, 04:30 EST
Primary Pair Impact : GBPUSD
Expected: -1.5%
Previous: -1.6%
Effects the U.K. Gross Domestic Product had over GBPUSD for the past 2 months
4Q 2008 U.K. Gross Domestic Product
| The growth rate in the U.K. fell 1.5% in the fourth quarter to mark the biggest economic contraction since 1980, and the region is likely to face a deepening downturn in 2009 as the financial crisis continues to take a toll on the economy. The breakdown of the report showed that service-based activity slid 1.0% from the third quarter, while manufacturing plunged 4.6%, followed by a 1.1% drop in construction. As the region is expected to face its worst recession in over half a century, the BoE is widely expected to ease policy further even as the overnight rate remains at a record-low of 1.50%, and may employ tools beyond the interest rate as the outlook for growth and inflation falter. However, Governor King stated that he expects ‘a pronounced contraction in spending and outputs’ as the fundamental outlook deteriorates, and said that ‘the rate of contraction is likely to continue to be marked,’ during the first half of 2009. | |
3Q 2008 U.K. Gross Domestic Product
| The advanced GDP reading for the U.K. showed that the economy contracted 0.5% in the third quarter, and conditions are likely to get worse as Great Britain heads into a recession for the first time since 1991. Falling home prices paired with instability in the global financial market has certainly taken a toll on Europe’s second largest economy, which could force policy makers to step up their efforts over the coming months as growth prospects deteriorate at a rapid pace. Meanwhile, Bank of England Governor Mervyn King stated that the ‘economy is entering a recession,’ and went onto say that the policy makers will move ‘promptly’ to in order to meet the central bank’s dual mandate to ensure price stability while fostering economic growth. As a result, market participants expect the BoE to ease policy further over the coming months, and which is likely to drag on the British pound going forward. | |
What To Look For Before The Release
Traders with access to market depth information via the FXCM Active Trader Platform may use it to gauge the potency of the economic data release as well as to shed some light on the market’s directional bias. Increasing volume ahead of the announcement will telegraph likely follow-through behind whatever move is to materialize, while an imbalance in available liquidity on the Bid versus the Offer side of the market will tell us the direction major institutions are likely favoring ahead of the announcement:
| Bullish Scenario:
If we see substantially deeper available liquidity on the Bid side of the market, this tells us that major price providers in the market are looking to buy the GBP against the US Dollar. Considering that close to 60% of all FX market volume is cleared through just six top banks, we see it prudent to be on the same side of the trade as major institutions and will favor a bullish bias on GBPUSD ahead of the data release. | Bearish Scenario: |
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