Sterling little changed by UK’s GDP data

by Jonathan Adams
Sterling edged down

Sterling was little changed and dropped 0.2% versus the dollar at $1.3835 after the data was released

Sterling edged down on Thursday as analysts expected the Bank of England (BoE) to make no imminent moves in its monetary policy after official data showed Britain’s economy grew in line with expectations in Q2.

The Office for National Statistics (ONS) said the economy grew by 4.8% in the second quarter, in line with a Reuters poll of economists’ quarter-on-quarter expectations.

Sterling was little changed and dropped 0.2% versus the dollar at $1.3835 by 1526 GMT after the data was released, breaking a 3-day losing streak versus the dollar.

Versus the euro, the pound traded just off 18-month highs reached on Tuesday and was 0.2% down on the day, changing hands at 84.83 pence.

ING analysts said it was unlikely that the GDP data would move the needle on the BoE story.

Stuart Cole, head macro economist at Equiti Capital in London, said that for sterling, while the economic landscape continues to provide solid support, it does suggest further topside progress will be slow. It is quite likely that the pace of growth has already peaked.

Sterling has outperformed in recent weeks allowed the UK government to lift most social-distancing rules following a drop in the number of COVID-19 cases and high vaccination rates.

GBP investors will be looking for direction in forthcoming UK data releases to gauge whether there is risk that the BoE could extend the hawkish element, seen last week, further in the months ahead, said Jane Foley, head of FX strategy at Rabobank.

Analysts said the BoE tone was slightly hawkish last week, when its monetary policy committee voted 7-1 to maintain the pace of its government bond-buying. But they said that some modest tightening of monetary policy over the BoE’s three-year forecast period was likely to be necessary.

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