Pound Declines On Poor GDP, Industrial Production Data

Pound Declines On Poor GDP, Industrial Production Data
June 11, 2019
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The pound started declining against the US dollar yesterday after the release of GDP and industrial production data that revealed worse than anticipated contraction of the economy. The downtrend was also aided by the delays in finding an alternative for Ms. Theresa May who now assumes the role of “caretaker” after resigning on May 24th. Furthermore, US President Trump’s decision to indefinitely suspend tariffs on Mexican goods also supported the strengthening of the greenback against the pound. Yesterday, the GBP/USD pair declined from a high of 1.2730 to a low of 1.2638 before recovering slightly to trade at 1.2660 levels.

The currency pair opened yesterday with a slight bearish bias on news of Trump’s decision to suspend import duty on Mexican goods. Last weekend, President Donald Trump revealed that the US and Mexico had inked a deal to avoid import duties that were scheduled to become effective yesterday. Trump further stated that Mexico, on its part, has guaranteed to take “strong measures” to halt illegal immigration that happens through the southern border of the US.

The decline accelerated after the UK Office for National Statistics stated that the GDP contracted by 0.4% m-o-m in April 2019, mainly due to weakness in manufacturing.  Analysts had anticipated the economy to contract by 0.1%.

The data published by the Society of Motor Manufacturers and Traders revealed that car manufacturing declined by 44.5% in April 2019, compared with the same period last year.

Commenting on the weak GDP data, Rob Kent-Smith, Head of GDP at the ONS said: “GDP growth showed some weakening across the latest 3 months, with the economy shrinking in the month of April mainly due to a dramatic fall in car production, with uncertainty ahead of the UK’s original EU (European Union) departure date leading to planned shutdowns.”

Likewise, the industrial production contracted by 2.7% in April, the maximum recorded fall since 2012, versus 1% contraction anticipated by analysts. Furthermore, the manufacturing production and construction output figures missed consensus estimates.

Finally, the cable was also negatively impacted by the UK leadership competition where Boris Johnson is leading the fray to become the next Prime Minister. However, he faces tough contest from Jeremy Hunt, the current Foreign Minister who is backed by Pensions Secretary Amber Rudd and Defense Secretary Penny Mordaunt.

The economic data and political uncertainty are expected to keep the GBP/USD pair bearish in the short-term.

Technically, the GBP/USD pair has started declining after facing resistance at 1.2690. The currency pair is also moving below its 50-day moving average. Additionally, the RSI indicator is also having a reading below 50. As a result, we can expect the currency pair to move down in the short-term.

GBP - technical analysis - 11th June 2019

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.


Andrew Wright

Prior to founding tradersasset.com in 2014, Andrew worked as a proprietary trader, then as a market maker. As a market maker, he traded options in over 100 stocks, he then began trading currency pairs in 2013. Andrew still actively trades both, and prides himself on educating and informing traders on the benefits of both Binary Options and Forex.

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