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UK GDP Disappoints as USD Stimulus Hopes Hold Up Forex Market

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UK GDP Disappoints as USD Stimulus Hopes Hold Up Forex Market
  • UK Economy Missed Expectations in August
  • Negative Rates and Brexit Saga Both Hamper Market
  • US Stimulus Possibility Keeps Dollar Weak

The Pound weakened slightly today on the news that British GDP data badly missed expectations for the month of August. This comes as a rising number of COVID-19 cases across Britain and Europe continue to hamper recovery efforts. The slip in the Sterling forex market has prompted renewed speculation that the Bank of England will move to enact a cut to negative interest rates. The tide of tough news for the UK has been somewhat stemmed though by renewed hopes of economic stimulus in the United States.

Big GDP Miss in UK for August

Analysts and many of those in forex trading had predicted a GDP rise of more than 4% in the UK for August. The fact that this number has come in at around half of that is a huge disappointment. The British economy grew by just 2.1% during the month of August. This is a huge drop off in numbers from the previous months, particularly June, and July. It points to a much slower than anticipated economic recovery from the coronavirus pandemic.

The number is a surprise given that the country has only started to suffer from a resurgence of COVID-19 cases in recent weeks with local lockdowns, and a curfew on bars and restaurants put in place.

More Restrictions and Rate Change Possibility

With the expectation that the UK and other European countries will announce further lockdown restrictions this week, the question has again been raised as to whether the Bank of England will consider a move to negative interest rates in order to stimulate the economy. It is thought that they are now taking on advice from the Prudential Regulatory Authority as to how negative rates could be successfully utilized. Forex brokers believe that this could act as another blow to the Pound.

At the same time, Britain remains at odds with the EU over its Brexit trade deal. This saga has dragged on for some time, and shows no sign of being resolved at any point soon despite the ongoing talks between the two sides. All of these factors combined mean that the biggest thing propping the GBP value up at the moment is US Dollar weakness.

Weak USD Continues to Steady Forex Market

Major forex pairs around the world have managed to retain a strong position recently thanks in the most part to a weakened US Dollar. This includes not only the Euro and British Pound, but also the Canadian Dollar which has continued to rally.

There remains optimism among traders, and therefore a distance from the safe haven Dollar, that a second US stimulus deal may still be agreed. This looks likely to be a partial deal on specific areas such as airline support, and potentially a further stimulus check, though confusion remains since President Trump has effectively withdrawn from talks.

 

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Anthony is a financial journalist and business advisor with several years’ experience writing for some of the most well-known sites in the Forex world. A keen trader turned industry writer, he is currently based in Shanghai with a finger on the pulse of Asia’s biggest markets.

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