The pound continued its rally against the US dollar yesterday despite the release of worse than anticipated current account deficit and slightly weak GDP data for the September quarter. The unexpected 15bps rate hike announced last week by the Bank of England (BoE) keeps the pound strong against its peers. The lower-than-anticipated US existing home sales data also enabled the pound to consolidate its gains later in the day. Overall, the GBP/USD pair rallied from a low of 1.3170 to a high of 1.3360.
According to the ONS, the UK’s current account deficit widened to £24.40 billion (4.20% of GDP) in the September quarter, from £13.50 billion (revised from £8.60 billion) in the June quarter and greater than the £15.80 billion deficit anticipated by economists.
Devoid of precious metals, the underlying UK current account deficit widened to £21.7 billion (or 3.7% of GDP) in 3Q21.
Specifically, the aggregate trade balance, devoid of precious metals, widened to £8.2 billion in the September quarter, primarily due to an increase in import bills and a decrease in exports.
The primary income deficit widened to £7.1 billion (or 1.2% of GDP) in the third quarter, reflecting large earnings on investment in the country by non-residents. Likewise, the secondary income deficit widened to £6.4 billion, mirroring the initial full quarter of payments to the EU as per the Withdrawal Agreement.
The UK recorded net financial flows of £11.3 billion in the September quarter. Notably, the increase in equity capital and loan liabilities was only partly negated by a rise in direct investment and reserve assets. Overall, the country’s net international investment liability position widened to £523.3 billion.
Final data published by the ONS indicates that the UK’s economy expanded 1.10% q-o-q in the September 2021 quarter, following a growth of 5.40% in the June quarter and lower than the initial estimate of 1.30%. Economists did not anticipate any change in the initial estimate.
The current GDP level is 1.50% below where it was before the pre-pandemic February (4Q 2019). The annual GDP of the United Kingdom in 2020 is now projected to have shrunk by 9.4%, down from a first-quarter forecast of minus 9.7%.
Household consumption increased by an upwardly amended 2.70% in the September 2021 quarter and recorded the largest contribution to expenses. The UK’s net borrowing situation with the rest of the world declined to -4.30% of GDP in 3Q21, compared with -2.40% in 2Q 2021. The household saving ratio fell to 8.60% in the third quarter, from 10.70% in the June quarter.
The Household’s net lending position in the non-financial account fell to £13.5 billion (or 2.3% of GDP) in the latest quarter, from £23.8 billion (or 4.10% of GDP) in the second quarter. The decrease in lending was led by a 3.30% q-o-q increase in household spending. Both non-financial and financial corporations slashed their net lending position to 0.60% of GDP in 3Q 2021.
According to the third estimate published by the US Bureau of Economic Analysis, the country’s GDP grew 2.30% q-o-q in the September quarter, following an economic expansion of 6.70% in the June quarter. The reported figure was slightly better than the second estimate, which pegged the GDP growth at 2.10%. Economists had anticipated no change in the second estimate.
Furthermore, the US GDP rose by an annualized rate of 8.40% (or $461.30 billion) to $23.20 trillion in 3Q 2021. In the previous quarter, GDP expanded 13.40% (or $702.80 billion).
The price index for GDP rose by 5.60% in the September 2021 quarter, compared with a growth of 5.80% in the June 2021 quarter. Also, the PCE price index increased 5.30%, following a rise of 6.50%. Devoid of food and energy prices, the PCE price index grew by 4.60%, compared with a rise of 6.10%.
Furthermore, real gross domestic income (GDI) rose by 5.80% in 3Q 2021, following a growth of 4.30% in 2Q 2021. Profits from current production rose $96.90 billion in September 2021 quarter, compared with a rise of $267.80 billion in the June 2021 quarter.
According to data published by the National Association of Realtors, existing home sales rose by 1.90% m-o-m to 6.46 million units in November, from 6.34 million units in the prior month, but missed the 6.55 million units anticipated by economists. Notably, existing home sales increased for the third successive month.
In the similar period last year, existing home sales stood at 6.59 million units. This implies a decline of 2% y-o-y in November 2021.
Total housing inventory was 1.11 million units at the end of November 2021, a decrease of 9.80% from October 2021, and 13.30% lower than the November 2020 level of 1.28 million units. Notably, unsold inventory remains at 2.10 month supply at the current sales rate, a drop from both the earlier month and from a year back.
The median existing home price for all housing types was $353,900 in November 2021, an increase of 13.90% from the November 2020 level of $310,800. This reflects the 117th successive month of y-o-y increase, the lengthiest ongoing series on record.
The weak economic data from the UK, the unanticipated rate hike of 15 bps by the BoE, mixed economic data from the US, and hawkish stance by the Fed are expected to keep the GBP/USD pair range-bound in the short-term.
The historical price chart indicates that the GBP/USD pair is rising after testing the support at 1.3190. The next resistance is anticipated only near 1.3510. Additionally, the currency pair is trading above its 50-day moving average, while the MACD indicator has a positive reading. Therefore, we are anticipating the currency pair to remain in an uptrend in the short term.
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.
