Thursday was the worst day for the Sterling this week so far, as it edged lower against all other major currencies yesterday. Nonetheless, the losses were not as substantial as they could have been, with the largest one accounting for only 0.57% versus the Japanese Yen. The Pound also declined 0.56% against the Aussie, 0.52% versus the Euro and 0.50% against the Loonie; however, against the third commodity currency, namely the Kiwi, only a 0.21% loss was registered. At the same time, the Cable inched only 0.18% lower, despite most of US fundamentals significantly boosting the American Dollar.
British economic growth lost steam in the first quarter on the background of unexpected contraction in business investment. The second reading of Britain's first-quarter GDP figures confirmed the loss of momentum in the economic recovery. The Office of National Statistics announced that the economy grew 0.4% in the first quarter, slower than the 0.6% pace in the last three months of 2015, the same as the first estimate given in April. From a year earlier GDP expanded 2%, which was revised down from last month's first reading of 2.1%, the ONS said. Moreover, business investment missed with a fall of 0.5% against 3.2% expected. Also the BBA's mortgage approvals did not meet expectations by sliding to 40.1K against 44.8K predicted.
In addition, a separate report showed that out of the four main components on the output side of GDP, production and construction contracted from the previous quarter, while agriculture and services activity increased, according to a breakdown of the first quarter's reading. Production shrank 0.4% and construction fell by 1%, the ONS said. Manufacturing, the largest component within production, dropped 0.4%. Services, which account for a massive 79% of GDP, increased 0.6%, posting a 13th consecutive quarter of growth. The expansion was less than the fourth quarter's 0.8% pace.
US GDP Annualized and Reuters/Michigan Consumer Sentiment Index
GBP/USD still risks breaking the down-trend
The Cable underwent the expected correction on Thursday, as supply, represented by the 22-month down-trend and the Bollinger band, was sufficient to prevent the Sterling from appreciating. However, the exchange rate was unable to fall under the nearest support, namely the weekly R1, where demand could attempt to push the price higher again today. Meanwhile, technical studies are giving mixed signals in the daily timeframe, unable to provide a clear sense of direction. The base case scenario remains a decline, with the 1.46 level being the key level to limit the losses. Nonetheless, we should not rule out the possibility of a bullish development, as fundamentals could weaken the Buck today.
Daily chart
Hourly chart
Bears now in the majority
There are 57% of traders being long the Sterling today (previously 54%), while the share of sell orders inched up from 52 to 58%.
At OANDA market sentiment worsened over the day, as 53% of their open positions are short today, compared to sentiment being in a perfect equilibrium on Thursday. Meanwhile, the sentiment at SAXO Bank remained unchanged over the day, as bears take up 61% of the market for the third consecutive day.
Spreads (avg, pip) / Trading volume / Volatility
Majority sees GBP/USD below 1.46 in three months