GBP TRY Stuck around Seven-Week Low after GDP Disappointment

An underwhelming response from investors to the latest estimates for UK GDP continues to keep the GBP TRY exchange rate near a seven-week low today.

Investors Little Impressed by Upwards UK GDP Revision

After already clocking in above forecast in the preliminary figures, UK 2016 Q4 GDP was revised higher to 0.7% in the second round of estimates. The Pound was not impressed, however.

Year-on-year GDP was cut by twenty basis points, falling to 2%, while total business investment fell -1% in the final three months of the year; the first decline seen since the financial crisis. This caused significant consternation amongst investors, as it suggests the outlook for productivity, employment and wage growth will remain weak.

TUC General Secretary Frances O’Grady stated;

Despite a modest boost to public investment last year, UK investment still lags behind the world’s leading industrial nations. With private sector investment in retreat, the Chancellor must focus on closing the gap with our competitors in next month’s budget. This would help protect jobs and wages, and it would give a much needed boost to business confidence.

As a result, GBP TRY exchange rates slumped to a seven-week low. Today’s CBI retail survey results have provided little cause for celebration; current figures have printed positively, but remain below the four-year average. Meanwhile, UK firms are becoming more pessimistic over the economic outlook.

Lira Climbs on Business Confidence and Trade Outlook

Consumer confidence figures released on Monday showed that sentiment edged lower in February, with the index falling from 66.9 to 65.7. The fall shows that optimism is at its second lowest level since October 2015. The data revealed that consumers were most worried about household finances and the odds of them being able to put money into savings.

However, yesterday’s business confidence survey showed a significant rise in sentiment during February. The index climbed from 97 to 105.3, recovering from a seven-year low on the back of hopes for strong output in the next three months. Capacity utilisation edged lower to 75.4%, however.

Overall, the data was positive enough to boost the TRY GBP exchange rate into a significant uptrend. Gains continue today, taking the pairing up 1.9% to around 0.2243.

Today, the Lira is preventing the Pound from recovering thanks to comments from Pakistani Prime Minister Nawaz Sharif on the future of economic relations between his nation and Turkey. In particular, he noted that the US$600 million worth of trade flowing between the two nations was below potential and stressed his commitment to achieving a free-trade agreement (FTA) between the two nations as soon as possible.

GBP TRY Forecast; Quiet Data Calendar to Leave Gloomy Economic Outlook in Focus?

Only the British Banker’s Association (BBA) loans for house purchase figure for January remains to be released this week, while there is no Turkish data due for publication until after the weekend.

This is likely to leave the UK’s economic outlook in focus. Trader pessimism could therefore drag the Pound lower during tomorrow’s session.

Rewan Tremethick

Contact Rewan Tremethick