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UK GDP beats market expectations, Q1 will now likely see the UK exit its shallow recession..

The UK has marginally returned to growth and will officially be out of recession, as long as March's figure doesn't post a -0.6% negative result. The 0.3% & 0.2% previous releases are a welcome sight and the R word should a be a thing of the past now as far as the UK is concerned. 

Yesterday, the ECB all but confirmed an interest rate cut will arrive in June. 20bp is fully priced into the market and the only real reason why the Euro hasn't slipped further, was the uncertainty over whether there could be anymore this year. 

ECB President Lagarde commented that disinflation is highly likely to continue in the EU (unlike over in the US) and so we can expect potentially more weakness to come in the € if further rate cut follow. For now, the single currency is looking rather resilient.

Over in the US and the Dollar has seen a renewed bout of strength following strong economic figures and a stickier than expected inflation rate. A change of monetary policy stance is probably needed by the Fed as the country is performing well with higher interest rates.

An interest rate cut in the US has consistently been pushed back in money markets for the last 6-months and the once fully nailed on June cut is now hanging in the balance. This has ramifications for other nations as not many will want to risk moving ahead of the Fed that will likely weaken their currency and financial system. 

So for now, GBP v EUR is back to trading at the top of its range, but more strength could arrive near-term. On the other hand, GBP v USD is under pressure and will likely continue to fall from here. Forward contracts are certainly worth looking at to bank profit in the € and to protect against the $. 

By Dan Waterman on April 17, 2024