The pound declined against the greenback on Friday after the UK’s Office for National Statistics reported an unexpected contraction of the UK’s economy in March. The US consumer sentiment data for May did not meet expectations. However, the market was focused on the UK’s GDP data. Overall, the GBP/USD pair has declined from a high of 1.2533 to a low of 1.2450 in the past 24 hours.
According to the Office for National Statistics, the UK’s economy contracted 0.30% m-o-m in March, following no growth in February. Economists did not anticipate any change in the reported period.
The decline was led by the services sector, which recorded a contraction of 0.50%m-o-m in March following a 0.10% decrease in February. Output in consumer-facing services inched lower by 0.80% m-o-m in March, following a 0.40% increase in the previous month.
Also, the UK’s GDP grew by 0.10%q-o-q in the March quarter of 2023.
In a separate news release, the ONS also stated that the UK’s construction output rose by 0.20% m-o-m in March following a 2.60% increase in the prior month and surpassed the market’s forecast of a 0.40% decline.
In volume terms, construction output inched up 0.20% in March. The increase was led by a 0.70% rise in fresh work, which was partly negated by a 0.60% decline in repair and maintenance.
Four of the nine sectors posted growth in March. Infrastructure related to fresh work and other public works recorded an increase of 2.20% and 6.50%, respectively.
Also, construction output grew by 0.70% q-o-q in the March 2023 quarter. The increase was led by a 4.90% rise in repair and maintenance. Fresh work posted a decline of 1.90%.
Furthermore, construction output surged 8.50% y-o-y in March 2023.
The ONS also stated that the UK’s industrial production grew by 0.70%m-o-m in March, following a decline of 0.10% in February and exceeding forecasts of a 0.10% expansion. The reported figure reflects the highest monthly growth since May 2021.
In the US, according to the preliminary data published by the University of Michigan, the consumer sentiment index declined to 57.70 in May from 63.50 in April and missed forecasts of 63.
The current economic conditions index fell to 64.50 in May from 68.20 in April. Likewise, the consumer expectations index decreased to 53.40 in May from 60.50 in April.
The survey also indicated that inflation expectations for the year ahead inched down to 4.50% in May from 4.60% in April. Following two years of stability, long-term inflation forecasts hit their highest level since 2011, rising to 3.20% in May from 3% in the previous month.
The weak GDP data is expected to keep the pound slightly bearish against the greenback in the short term.
The historical price chart indicates that the GBP/USD pair is declining after facing resistance at 1.2635. The next support is anticipated only near 1.2370. Additionally, the currency pair is trading below its 50-day moving average, while the stochastic indicator is in the bearish zone. Therefore, we anticipate the GBP/USD pair to remain in a downtrend in the days ahead.
Disclaimer: Any financial trading analysis offered here is our opinion and is not intended as advice or direction for investors. We cannot guarantee the success of any trades made as a consequence of this article, and we encourage traders to incorporate a strong money management strategy to limit losses when they enter the markets. Please use this article as part of your own research before formulating strategies prior to trading.
