Pound falls as Q4 GDP growth numbers revised down

The UK economy expanded only 2% y-y in Q4, less than 2.2% flashed in the preliminary estimate.

Pound notes
Pound notes Reuters

The British currency fell across the board on Wednesday (Feb 22) as the first revision of the Q4 GDP data came as a negative surprise.

The UK economy expanded only 2% from a year earlier in the three months to December, the ONS said, cutting down the preliminary estimate of 2.2% flashed on 26 January.

The sequential growth rate, however, was revised upwards to 0.7% from 0.6% prior. One more revision is due for the measure, scheduled for March 31.

GBP/USD slipped to 1.2440 from 1.2490 upon the news. The sterling was down 0.2% on the day against the greenback and 0.65% weak against the yen at 6:30 pm in Singapore. Against the Australian dollar, the pound was down 0.3%.

Another negative surprise on the data front was business investment numbers for the fourth quarter.

Investments fell 0.9% year-on-year in Q4, data showed on Wednesday, softer than the 2.2% slide in Q3, but disappointing as analysts had been expecting a rebound to 0.2% growth.

On a quarterly basis, it fell 0.1%, compared to 0.4% growth recorded in the three months to September and market expectations of 0% reading.

Despite the day's fall, the pound is still o.4% up against the dollar in this week.

At the same time, in the bigger picture, the sterling is moving sideways in a tight range of 1.1987-1.2776 since November, only a shade above the multi-year low of 1.1946 touched in October.

BoE Policy and Carney

While responding to British lawmakers' criticism of the latest Bank of England stance of waiting for further improvement in the employment level for starting to hike interest rates, the central bank head Mark Carney said the Bank remained convinced that a forecast overshoot in inflation in Britain was entirely due to the fall in the value of the pound since the Brexit vote.

But if the pick-up in inflation started to fuel higher pay settlements, it would push the Bank closer to its limit for tolerating inflation overshooting its 2% target, he said.

"If (inflation) starts to influence wage behaviour and other price behaviour, and we start to see domestically generated consequences of that, that moves us closer to the limit," Carney said.

Carney had recently said the unemployment rate needs to fall to at least 4.5% before it starts helping accelerating inflation. The 'equilibrium jobless rate' used to be seen at 5% for years until that correction, which made the lawmakers criticise Carney.

GBP/USD Technicals

Over the short term, the pair is testing support at 1.23468 and a break of that will open 1.22300 ahead of 1.19867, the lowest level traded this year.

On the higher side, 1.25495 and 1.25835 are the immediate levels to watch out for and then 1.27075, the highest level traded this year.

On a big picture analysis, the 1.19867-1.27765 range is something to consider. A break on either side of the range will be technically crucial for the pair.

A higher side break will target 1.3000 first and then 1.4000 without much intermediate levels between. Lower side break will of course open doors to fresh multi-year lows for the pair.