UK growth slows sharply in February
Growth in the UK slowed sharply in the month of February, according to the latest gross domestic product (GDP) data released by the Office for National Statistics (ONS) this morning.
UK GDP falling short
UK monthly GDP grew 0.1% in February, falling short of forecasts of 0.3% and much lower than the 0.8% rise seen in January.
Let's take a look now at a chart of the pound to see how it's been trading from the release this morning. This here is the pound against the US dollar. As you can see, momentum so far is tilting to the downside coming in from those losses that we have seen for the last 10 sessions or so. As you can see, let's quickly zoom in to a five-minute chart to see exactly what's happened since the data release because, yes, we have seen that negative reaction, it was released this morning at 7 am.
You can see that stagnation of growth which is the fear that we've had in the market for a while now, really retracing from that move this morning, but coming back up so far. So, we have seen the move retrace in the market since the release this morning. It is outdated data, so it's not really surprising but it doesn't really help the pound fighting against this bearish trend that we've seen so far, this bearish sentiment in the pound against the dollar. And it also feeds into concerns about stagflation.
That's been the talk of the last few months, considering this rapid rise in inflation. Remember, we have UK CPI data coming out on Wednesday, and we’re expecting it to come in at 6.7% in March, up from 6.2% in February. So, again, this slowing in growth that's now evident with this strong inflation forecast does put markets a bit into concern of what it means for the economy in the next few months.
Are we going to see a recession down the line? Let's quickly zoom out again to see how it's been performing overall. As I said, this bearish trend now really consolidating, and although we have seen that retracement from the move this morning now done, it does still point towards the further downside trade.
If you are looking for an area to watch out for, this area here, $1.2854, $1.2850, that's probably the nearest support that we have. Anything between now, just on that $1.30 line, towards there, we do have a bit of a gap. Not really much support from this past trade back here in October 2020. And heading towards that Fibonacci line here, that 50% at $1.2828. I've been talking about this a lot in the last few months, especially since we saw this pullback here at the beginning of February, mid-February. There was definitely room for the pullback to extend towards the 50% Fibonacci and it looks like that's going to be the case.
Let's quickly look at the euro against the pound to see how that's trading. As I said it's not just isolated to cable, even though we have seen some dollar strength in the recent sessions because of those strong US yields.
The move in the pound has not been isolated, as you can see here. EUR/GBP also picking up some momentum - euro outperforming the pound heading into that area of resistance here between £0.8380 and £0.84.
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