UK business investment rose 3.8% in Q2 despite slow economic growth

GBP

The pound remained firm against both the euro and US dollar after stronger than expected GDP data. The UK economy contracted by 0.1% in the second quarter of the year, which is less than the 0.2% the market was looking for. The economy overall grew in the year to the end of the second quarter by 2.9%, which is more than the 2.8% the market was expecting. The pound saw some volatility around the release but was unwilling to make any directional moves in either direction.

UK GDP meanwhile fell by 0.6% in June 2022 according to the ONS data, but this was less than the -1.2% the market was expecting. Furthermore Industrial production rose 2.4% in the year to June, ahead of the 1.6% the market was looking for. Manufacturing production rose 1.3% in the year, ahead of the 0.9% consensus.

Finally, business investment rose 3.8%, with markets actually projecting a contraction of 0.3%.

USD

The dollar fell further on Thursday as inflation data came in lower than expected. The recent release of the CPI suggest that inflation may have peaked in the US and the Federal Reserve may not look to increase interest rates aggressively.

Investors slashed bets on the possibility that the Fed will raise interest rates by 75 basis points for a third consecutive time to help tame decades-high inflation when it meets in September after a report on Wednesday showed US consumer prices were unchanged in July.

The dollar fell to its lowest level across the board as traders readjusted their forecasts to factor in the chance that inflation may have peaked. Traders are now pricing in a 58% chance of a 50 basis points hike in September and a 42% chance of a 75 basis points increase.

Data on Thursday showed that US producer prices unexpectedly fell in July amid a drop in the cost for energy products and that underlying producer inflation appears to be on a downward trend, while jobless claims rose for a second straight week in a labour market that remains tight.

Key announcements

07:00 – GBP – GDP m/m – Actual -0.6% from previous 0.4%
07:00 – GBP – GDP q/q – Actual -0.1% from previous 0.8%