GBPUSD in Focus Ahead of UK Growth, US Inflation News

May 11, 2022 09:39

Did the UK economy grow or shrink in the first quarter?  

A red-hot button for market sentiment is the fear of a possible recession caused by high inflation amid fitful recoveries from the COVID-19 pandemic downturns. As the sixth largest economy in the world, the UK is seen as one of the benchmark economies that can give clues as to the global economy’s performance.  

After growth slowed in the US during the first quarter, further signs of weakness in the UK could wake up more bearish sentiment in the currency and stock investment markets. The US is the UK’s second-largest trading partner after the EU, meaning that a slowdown in one country may impact on the other.  

The UK reports preliminary GDP results for the first quarter on Thursday, May 12. Growth is seen at 1 percent for Q1 compared to 1.3 percent in Q4 (2021). Lingering Brexit fallout has weighed on the GBP and the US Dollar’s recent strength has put selling pressure on the GBPUSD. 

If the latest GDP results disappoint expectations, the GBP could decline further, but in the case of an upside surprise the currency might gain strength on renewed confidence. The GBP also has some support from rising interest rates in the UK which are adding attraction to savings and bonds.  

Another red-hot trigger is the volatility in the Forex and stock markets caused by inflation pressures. Safe-haven buyers have turned to the USD for comfort and an important trading event comes up today with the release of US inflation data for April that may move the currency’s crosses.  

In other news, stock investors can expect earnings results from large-caps Walt Disney and Toyota Corp. Walt Disney may have seen a negative impact on its subscriber count in a trend reported by Netflix. As COVID-19 restrictions ease, consumers are spending more time outside their homes, impacting the level of interest in home entertainment. Walt Disney has other verticals that support the company’s revenues, including theme parks and movie production studios, meaning that any decline in one part of the company could be partially offset by another.

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This material does not contain and should not be construed as containing investment advice, investment recommendations, an offer of or solicitation for any transactions in financial instruments. Please note that such trading analysis is not a reliable indicator for any current or future performance, as circumstances may change over time. Before making any investment decisions, you should seek advice from independent financial advisors to ensure you understand the risks. 

Sarah Fenwick
Sarah Fenwick Financial Writer

Sarah Fenwick's background is in journalism and mass communications. She has worked as a correspondent covering Swiss Stock Exchange news and written about finance and economics for 15 years.