Forex - Pound Rallies as UK Growth Revised Higher

Pound moves higher after slightly stronger UK growth data

Investing.com - Sterling rallied on Friday morning following the release of better than forecast growth figures for the first quarter, increasing chances of a rate hike in August.

At 6:34AM ET (10:34GMT), GBP/USD gained 0.50% to 1.3143.

On Thursday, amid household debt and Brexit concerns, the pound dived to 1.3055, its weakest level since November 2017.

On Friday, the UK Office for National Statistics released its final reading of British gross domestic product for the first quarter of the year showing 0.2% growth quarter-over-quarter. Analysts had expected sluggish growth of just 0.1%.

GDP grew by 1.2% on a year-over-year basis in the first quarter, in line with expectations. Year-over-year previous quarter growth was revised upward from 1.2% to 1.3%.

The Bank of England predicts growth for the second quarter of 0.4%, the ONS will release Q2 GDP on August 10.

At £17.7 billion ($23.3 billion), the current account deficit beat forecasts and was at its lowest level in a year.

The revision in Q1 growth is in line with comments from the Bank of England that first quarter data is often subject to revision. The upward revision increases the likelihood that the BoE will raise rates at its August meeting from 50% to 60%.

Dovish comments from incoming BoE policymaker Jonathan Haskel earlier this week hit expectations for an August rate hike as he said there may be more slack than previously thought in the UK economy.

The pound was also lifted on more positive comments coming from the EU Leaders Summit taking place in Brussels.

The EU’s chief negotiator Michel Barnier said on Friday that the UK and EU had made progress in Brexit talks and that the pending White Paper from the UK would be ‘valuable and workable’.

The UK’s White Paper on the exit from the European Union is scheduled to be released on the 9 July, following a Cabinet meeting at Chequers on 5 and 6 July.

In the early hours of Friday morning, the 28 members of the European Union made initial agreements on the issue of migration. As German Chancellor Angela Merkel’s position now looks more stable, the euro pushed higher.

At 6:36AM ET (10:36GMT), EUR/USD increased 0.61% to 1.1638, while EUR/GBP was at 0.8855, up 0.11%.

The US dollar index, which measures the strength of the greenback against a basket of six major currencies was down 0.46% to 94.56.

Sterling edged higher against other major currencies, gaining 0.55% to 27 against the safe haven Japanese yen.

Traders will be watching the EU Leaders Summit for more details on Brexit while UK PMI for June will be released next week.