02/07/2018 – Pound Rallies On Positive GDP Figures

GBP

The pound rallied on Friday to a two-day high after a better-than-expected revision to Britain’s first-quarter economic growth raised hopes of monetary policy tightening in the coming months. Adding to the bounce, the European Union’s chief negotiator Michel Barnier said that EU leaders had made progress in Brexit talks, though “huge” differences remained.

The British economy grew 0.2 percent in the January to March quarter, against a preliminary number of 0.1 percent, providing some ammunition to a hawkish Bank of England.

The data also showed Britain’s services sector gathered steam in April, raising expectations of a second-quarter pick-up after a sluggish start to 2018 that has stopped the Bank of England raising interest rates so far this year.

Market expectations for an August rate rise grew to 60 percent after Friday’s data release from 50 percent earlier last week. With momentum in Britain’s economy still fragile and uncertainty over Britain’s future relationship with the European Union, most traders remain cautious about the prospect of rate hikes and the pound.

The EU issued British Prime Minister Theresa May a final Brexit warning on Friday – put your cards on the table, offer ways to overcome “huge” differences and prevent Britain from crashing out of the bloc without a deal. But expectations of progress towards an actual post-departure deal have now been pushed back to October.

EUR

The euro jumped on Friday after European Union leaders reached an agreement on migration that eased pressure on German Chancellor Angela Merkel, but traders said the gains may be short-lived because of deep divisions within the EU.

A tense summit that dragged on into early Friday morning yielded vague pledges from EU leaders to strengthen external borders and explore new migrant centers. However analysts said risks remained for the euro because the agreement was non-binding and the summit showed how divided Europe has become, particularly with the emergence of a new eurosceptic government in Italy.

Key Announcements

09.30 – GBP: Manufacturing PMI; Forecast at 54.1 against previous of 54.4
09.30 – USD: ISM Manufacturing PMI; Forecast at 58.2 against previous of 58.7