Sterling volatility increased sharply following the ECB policy conference

US GDP data was slightly stronger than expected, although there was little sustained market impact with the dollar vulnerable to a limited correction after strong weekly gains and EUR/USD recovering from 3-month lows.

US yields edged lower while equities held a solid tone as positive dialogue between North and South Korea helped underpin risk appetite.

Sterling was subjected to heavy selling pressure after weaker than expected GDP data reinforced negative sentiment and triggered a further downgrading of May rate hike expectations with GBP/USD hitting 5-week lows.

In the provisional estimate, UK first-quarter GDP growth was reported at 0.1% from 0.4% previously and notably below expected growth of 0.3%. This was the weakest quarterly figure since the end of 2012 and year-on-year growth was held at 1.2% from 1.4% previously.

Significantly, the ONS stated that adverse weather conditions had only a limited impact which further eroded market sentiment and there was a further shift in futures markets with the chances of a May rate hike cut to near 30% from 50% ahead of the data. Sterling fell sharply with five-week GBP/USD lows near 1.3750 as EUR/GBP strengthened to highs around 0.8800.

There were no comments on the economy or monetary policy from Bank of England Governor Carney with Sterling able to secure only a limited corrective recovery as investment banks moved to downgrade their forecasts for UK rates.

The PMI data releases will be important this week to assess whether an improvement in weather conditions has helped trigger a rebound from weak data recorded during April.

Sterling was unable to regain significant ground on Monday with Home Secretary Rudd’s resignation and Brexit concerns surrounding Northern Ireland also limiting support with GBP/EUR also at 5-week low at around 1.1350.