UK and US first quarter growth figures are released on Friday (April 28th) in what could be an interesting day in the forex markets, particularly for cable.

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UK

 

Britain’s preliminary GDP reading for Q1 is due at 09:30 (BST) and is being closely watched for signs that the economy is either slowing down quicker or proving more resilient than expected. Doom-mongers that warned of Armageddon after Britain voted to leave the EU have been proved wrong, but there’s still plenty of time for this the economy to slide back as negotiations on Brexit are only just beginning.

Quarter-on-quarter we’re looking at something in the region of 0.4%-0.5%. This is largely based on a fairly lacklustre set of PMI readings from the last three months. Although activity recovered in March the slow start to the year in January and February is weighing on expectations and suggests the economy will grow at a slower rate than it did at the end of last year, when GDP expanded by 0.7%.

Most estimates are for growth to tick higher by 2% this year so we will need something in the region of 0.5% to keep those forecasts on course. A big miss would hit the pound as it might start to get investors nervous about where things are going vis-à-vis Brexit.

US

 

The advanced Q1 GDP reading for the world’s largest economy is due out at 13:30 (BST) the same day. Markets expect this to come in around 1.1-1.3% as consumer spending cooled, down from 2.1% in the final quarter of 2016.

Economist opinions vary a lot. The Atlanta Fed forecasts growth of 0.2% in Q1, while the New York Fed says 2.09%. Both have revised their forecasts down after disappointing data on retail sales and consumer spending.

With the chances of a weak reading rather high, markets are priced appropriately. What this means for the Fed is less clear. Janet Yellen has been keen to stress that GDP numbers are ‘noisy’ and the central bank would prefer to look at forward-looking indicators on wages, inflation and jobs, rather than what has already happened in the economy. Nevertheless a couple of quarters of weak growth would certainly dial back the Fed’s medium-term outlook and make it less likely to pursue further rate hikes.

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