The British currency rebounded on Tuesday after UK GDP data revealed growth stagnated in the final three months of 2019, despite markets expecting growth to contract.
Flash Q4 GDP showed the economy grew by a better-than-expected annual rate of 1.1 percent.
The data also showed that the economy grew by 1.4 percent through 2019, up slightly from 1.3 percent growth in 2018.
Commenting on this, chief global strategist at Audacity Capital, Karim Yousfi noted:
“Few expected fireworks from a report that focuses on the final months of election and Brexit uncertainty.
“So this is more a case of not good, but good enough. With a clear majority of the Bank of England’s interest rate-setting grandees already reluctant to cut rates, this GDP print will give them no impetus to cut any time soon.
“For this reason, the pound is pepping up against both the dollar and the euro.”
Sterling was able to rise despite other data revealing the British manufacturing sector suffered a -2.5 percent fall in output after a -2 percent slump in November.
However, the pound is unlikely to make any significant gains over the course of the week as investors look to UK-EU relations.
Uncertainty over the trade relationship between the UK and European Union will be the main catalyst for movement of Sterling exchange rates.
If tensions increase further and markets price in a lower chance of the UK being able to secure a deal with the bloc, the pound will fall.
Meanwhile, during a speech this afternoon, the European Central Bank (ECB) chief, Christine Lagarde warned the bloc’s economy had been slowing for two years.
Speaking to the European Parliament, Ms Lagarde stated:
“Euro area growth momentum has been slowing down since the start of 2018, largely on account of global uncertainties and weaker international trade.
“Moderating growth has also weakened pressure on prices, and inflation remains some distance below our medium-term aim.”
This left the single currency under pressure and she also warned the central bank cannot do it alone, and added:
“Monetary policy cannot, and should not be the only game in town.”