Sterling volatile after UK growth data

Sterling was volatile on Thursday after second-quarter growth in the UK failed to beat market expectations.

Growth in the three-month period ending June was 0.6 per cent – up from 0.3 per cent in the January-March quarter – and took the annualised rate up to 1.4 per cent. The numbers were bang on expectations and marked the first consecutive increase in two years.

Investors had been positioning themselves ahead of the data for a slightly stronger number after recent business activity and confidence numbers from the UK and eurozone had indicated global recovery becoming more robust.

Ahead of the data, the pound had been up 0.4 per cent against the dollar at $1.5370, but by midday in London was down 0.2 per cent at $1.5283. But in late New York trade, it was back up 0.5 per cent at $1.5392.

“The market is expecting forward guidance to be introduced at the Bank of England meeting next month and it doesn’t quite understand how that will impact sterling,” said Kathleen Brooks at Forex.com.

The pound was 0.1 per cent weaker against the euro at £0.8627.

Stronger data took the euro higher as the German Ifo survey of business confidence for July came in a little higher than expected.

The economic institute’s business climate index rose to 106.2 from 105.9 in June, beating expectations of 106.1. However, given Wednesday’s stronger than expected purchasing manager surveys for the month, there appeared to be some disappointment the Ifo number was not better.

The euro was up 0.6 per cent against the dollar to $1.3281.

New Zealand’s dollar was stronger after the country’s reserve bank left its main policy rate on hold at 2.5 per cent, as expected, but informed the market it expected to stick at this level for the rest of the year.

The next rate move from the RBNZ is expected to be upward given the strength in house prices and construction activity, and the more hawkish tone to the central bank’s statement lifted the Kiwi 2 per cent to $0.8094 against the US dollar.

“The RBNZ knows that higher rates could lift the Kiwi and it continues to insist that the currency is too high, but it might have to combine further currency intervention with rate hikes to try to limit Kiwi strength,” said Steven Barrow at Standard Bank.

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