Forex Latest: The market rally continues but it appears the positive sentiment could not translate to the GBP.
The GBPUSD pair is down 0.48% at 11am.
The GBP was initially up against the US dollar prior to the latest GDP figures which were horrifically below expectations.
The 0.8% quarterly drop was far worse than the consensus forecast of a 0.3% fall and suggests that the drop in GDP this year as a whole could be as sharp as 4.5%.
The implications for the GBP are stark: the poor performance in the second sector is likely to result in the continuation of aggressive measures by the Bank of England. Firstly the interest rate is going to remain low resulting in a low yielding sterling and secondly quantitative easing will also continue, a process that floods the market with sterling.
David Buik at BGC Partners sums up the mood on the latest GDP figures:
"I must confess I do not understand where the market picked that estimated number of -0.3% for second-quarter GDP! I assume it was from a tombola! There have been no signs that the economy has improved that dramatically from -2.4% to 0.3%. -0.8% seems more than fair in the circumstances."
However the forward looking FTSE appears not to have been hit by the GDP figures and a 10 day rally appears to be a certainty at this stage of play.
"At least the monthly CIPS/Markit surveys are on an upward trend and look like they will be consistent with positive GDP growth in Q3. But they've recently been far more upbeat than the official data, so we wouldn't rely on them much. Overall, it still looks likely to be a long hard slog to get the economy back on track," says Vicky Redwood, UK economist at Capital Economics.
