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Greenback remains bid following US Q4 GDP

Market Analysis


U.S. Q4 GDP growth was revised down to 2.5% versus the 2.6% pace from the Advance report, and it compares to the 3.2% clip in Q3. Personal consumption was left unchanged at a 3.8% clip, which is up from the 2.2% in Q3. Business fixed investment was revised higher to 8.1% from the 7.9% Advance rate, and Q3’s 2.4%, with support from a 13.0% growth pace in residential spending from 11.6% initially, and a downward adjustment to nonresidential to 6.6% from 6.8%. Government spending was nudged to 2.9% versus 3.0%. Inventories subtracted $30.5 bln (-0.70%) versus -$29.3 bln (-0.67%) previously, and a $33.0 bln (0.79%) add in Q3. Net exports subtracted $54.7 bln (-1.13%) versus the prior $55.1 bln (-1.13%), and which compares to the $16.1 bln (0.36%) add in Q3. The chain price index slowed to 2.3% versus 2.4% previously and 2.1% in Q3, while the core rate was steady at the 1.9% pace in the Advance report, though is up from 1.3% in Q3.

GBPUSD sank to 1.3806 earlier following the publication by the EU of a legal draft of its Brexit withdrawal agreement with the UK. The pound has also traded on a weaker path versus the yen and euro, among other currencies. The reaction from the UK government was fairly predictable saying “No UK PM could ever agree” with the  draft text, just as importantly the Northern Ireland DUP (whose support Mrs May needs in any vote in parliament) described  the draft proposal as “constitutionally unacceptable” . The sterling has failed to see a lasting bid following remarks earlier in the week by BoE Deputy Governor Ramsden, a dove who now sees the case for hiking sooner than later, partly on Brexit concerns and partly as markets have already been discounting a further rate hike after the BoE last November lifted the repo rate for the first time in over a decade. The latest Reuters poll found a consensus expectation for the BoE to hike the repo rate another 25 bp May. The next items on the UK agenda include lending data from the BoE, on Thursday, and the February PMI surveys for the manufacturing and construction sectors, due on Thursday and Friday, respectively, which we expect to be net neutral in terms of directional implications for the pound. Mrs May is scheduled to outline the UK Governments position in greater detail in a major speech on Friday. Sterling remains under pressure.


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Stuart Cowell

Senior Market Analyst


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