Sterling retreats after downbeat U.K. GDP, positive outlook looms

Sterling retreats after downbeat U.K. GDP, positive outlook looms

The sterling pound retreated against the U.S. dollar after a report showing U.K. first-quarter growth slowed more than forecasts.

Gross domestic product recorded 0.3 percent in the first three months of 2015, the slowest since the fourth quarter of 2012, compared to 0.6 percent in the last three months the previous year. Analysts predicted the growth pace to ease to 0.5 percent.

Why the news hit the sterling?

The downbeat figures reflect that recovery is still not strong enough, and therefore the economy needs more time to get on the right path.

-Analysts now predict the Bank of England will delay the decision of raising interest rates for even longer period.

– Markets are in favor of Conservatives, noting that the sterling climbed to its highest level versus the green currency on Monday after a poll showing Conservatives lead the election race with 6 points.

– The more than predicted ease in growth is a setback to David Cameron, with just nine days before elections, as he based his campaign on the strength of the economy that expanded 2.8 percent in 2014, marking the strongest among all G7 economies.

Pound outlook

-The pound retreated against the dollar to fall from a peak of 1.5258 to trade around 1.518, where the session’s low was recorded at 1.5174.

-Despite the retreat from seven-week high, the outlook for the pound is still positive amid concerns the Fed may postpone its interest rate hike decision, following a parade of downbeat economic data.

-The GBPUSD has support near the session’s low, which represents 23.6 percent Fibo to the downside trend that began in July 2014.

-The pair is trading above Daily SMA 50, yet it may find resistance from the trend line depicted on the chart.

-The RSI 14 Momentum Indicator has the chance to resume its climb above the 70 level, after rising above the 50-center line.

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Ahmed Mamdouh

Ahmed Mamdouh, Co-Founder and Head of English Fundamental Analysis at FXComment.com, with 7 years of experience in the financial markets. Mamdouh holds a Master’s Degree in Economics from The American University in Cairo and a Bachelor Degree in Economics from The Faculty of Economics and Political Science, Cairo University.

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