Gentium FX | Daily Report - 12th May 2022 - UK GDP Figures Put Sterling Under Pressure

Sterling is on the backfoot once again as the Office for National Statistics announced the UK economy shrank in March. The Preliminary UK GDP report showed the UK economy grew 0.8% during the first quarter of 2022, however this came in lower compared to the expected reading of 1.0%. The monthly release showed the UK economy contracted in March by -1% missing consensus estimates that were looking for a flat reading. The data comes on the back of a bleak economic outlook by the Bank of England warning that the UK is on course to enter a technical recession. Economists suggest the signs now point to further underwhelming growth with the Bank of England potentially ending its rate hiking cycle sooner then expected as a result.?

On the continent, European Central Bank President Christine Lagarde suggested that the ECB is ready to start hiking rates in July pointing to a three-hike scenario and the deposit rate ending the year at 0.25%. This is factored into Euro pricing so isn’t really offering much support to the Euro which remains subdued by the situation in the Ukraine and China’s self-inflicted slowdown. Brexit issues regarding the Northern Ireland protocol remain with UK PM Boris Johnson giving the EU till early next week to soften Northern Ireland’s trading arrangements otherwise the UK will introduce legislation to do so.

The US inflation data released on Wednesday delivered a worrying 0.6% month-on-month rise instead of showing any real signs of slowing. This does nothing to suggest the Federal Reserve will be more relaxed when it comes to hiking interest rates. The USD should remain supported in the coming months with the Fed trying to get its policy rate to neutral which could be closer to 3.5% then the 3.1% currently priced in. In the US docket today, we have the release of US PPI which is expected to edge lower from its 11% year-on-year high.