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Disaster! UK GDP Sinks For Sixth Quarter in a Row

Last updated 10/23/2009 5:11 AM ET (GMT -5) 4 Comments

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Boris Schlossberg

Director of Currency Research, GFT

UK GDP data proved to be disastrous printing at -0.4% versus 0.2% eyed marking six consecutive quarters of negative growth – the worst stretch of economic  performance in the post war era. The decline was driven by contraction in production which fell -0.7%, construction which declined -1.1% and services which dipped -0.2%.

The news absolutely shocked the market   with sterling tumbling a full two cents in a matter of minutes.  Cable has strengthened over the past several weeks on the assumption that BoE would limit any further quantitative easing measures capping the program at current level of 175 Billion GBP. However tonight’s news opens the way for further increases in QE which could prove very damaging to the pound in the short term.

Although the Q3 data was a massive disappointment, the most recent UK economic reports have not all been negative. Granted last night’s miss in Retail Sales was a foreshadowing of the weakness in overall consumer spending. However, the data from the housing front has shown consistent improvement including the BBA mortgage approvals which rose 42.1K versus 39.7K but were completely overshadowed by the horrid GDP data.

Was this the nadir in UK economic activity? The next batch of PMI readings due in two weeks will provide much better guidance to the fate of the pound. If the PMI data remains in expansionary territory perhaps the BOE will shrug off tonight’s GDP contraction and will allow the economy to recover naturally. However, if economic activity begins to show signs of a slowdown, further QE measures are almost assured and cable will likely fall below 1.6000 once again.

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Comments (4)

FXDragon

October 23, 2009 at 06:46 AM ET

Hey Boris, why does it say at the bottom of this website: "This website is not intended for residents of the United Kingdom."
Is it because of horrid uk gdp:)

bschlossberg

October 23, 2009 at 08:03 AM ET

No compliance requirements ")

4xTrader

October 24, 2009 at 08:02 PM ET

would you say this is a good sell opportunity (GBP/USD) or wait and see what the upcoming trading week indicates in terms of direction

bschlossberg

October 26, 2009 at 04:22 AM ET

Cable is clearly the weakest link in risk FX right now and it the dollar starts a counter trend rally it can easily fall below 1.6000 this week

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About The Author

Boris Schlossberg began his Wall Street trading career more than 20 years ago at Drexel Burhnam Lambert. There, he traded nearly every type of financial product on the market in the U.S., from equities and options to stock index futures and foreign exchange. His innate ability to analyze market information and use it to trade has helped him become an industry-recognized, “go to” trading professional.

These days, whenever the markets move, many organizations turn to Schlossberg for his take on the situation. He is a weekly contributor to CNBC's Squawk Box and a regular commentator for Bloomberg radio and television. His daily currency research is widely quoted by Reuters, Dow Jones and Agence France Presse newswires and appears in numerous newspapers worldwide. Schlossberg has written for publications like SFO magazine, Active Trader and Technical Analysis of Stocks and Commodities. He is also the author of Technical Analysis of the Currency Market and the co-author of Millionaire Traders: How Everyday People Are Beating Wall Street at Its Own Game with Kathy Lien. He joined GFT in 2008.