Will UK Growth data upset the pound in 2024?

UK GDP data is the key release for sterling this week

We have several key themes to monitor and to be aware of for financial markets and the pound in 2024 . I will shortly run through them, but before that, the key point this week is one of them. UK Economic Growth.

Tomorrow is the latest UK GDP economic growth numbers for November of last year.

GDP data is always ‘behind’, as in we are always looking at where we have been, not what is necessarily happening now or in the last few weeks.

However, it is of course a very good guide as to the trajectory of an economy, and so a vital clue to the puzzle of understanding how the UK economy is performing.

Currently, the 3rd quarter of 2023 is showing negative growth. This means, that should the 4th quarter of last year also show negative growth, the UK will technically have been in a recession.

October’s data was negative. So, if Friday’s is poor too, the chance of recession is higher, which is a greater potential for a weaker pound.

If you are looking at an FX transaction involving sterling and wish to have some support navigating this release, please contact myself Jonathan, on [email protected]

What else will move the pound in 2024?

We have covered economic growth/recession risk as a market mover. Here are the other factors to be aware of:

Interest Rates – When will the Bank of England cut interest rates? Interest rates rising (currency strength) and falling (currency weakness) are a key topic for sterling and the UK this year.

Also, the prospect of interest rate cuts by the ECB (European Central Bank), the US Federal Reserve and others, could see volatility on other currency pairs with sterling. Eg, GBPEUR, GBPUSD, GBPAUD, GBPCAD plus many others.

For a discussion of a currency pairing not explicitly mentioned by me here against the pound, eg GBPNZD or ZARGBP, please email me on [email protected]

UK Election – Voters go to the polls in the UK this year, most likely in the Autumn. General elections are known to be risk events for FX, with increased potential for currency volatility.

Labour significantly leads in the polls, will a Labour win strengthen sterling? Some forecasters seem to think so and this will be a trend to be looking for.

Inflation – This is the key measure the Bank of England uses to determine interest rate policy, it is falling. But will it fall fast enough to satisfy the market predictions on interest rate cuts?

In the last 18 months of interest rates rising, it is often the Inflation data that has seen movements for sterling, as investors try to second guess what it is telling the Bank of England. Speak to me about when these releases are scheduled and how they might shape your rate.

Geopolitical Risk – The ongoing Ukraine conflict last year saw excessive volatility on energy prices and also currency. The developing Middle Eastern situation not just with the Israeli / Palestinian conflict, but in the wider region with Iran and others, has lots of potential for market turbulence.

We should also include here malign events like terror attacks at home and abroad, which can disrupt economic growth and create increased political tensions, thereby affecting financial markets and currency.

US Elections – The US dollar accounts for around 60% of globally traded foreign exchange, which means big moves and changes stateside have an impact on the rest of the world. That includes the UK and sterling.

Polls seem to indicate a Trump win, the market view is this might be bad for the US’ overseas business interests and could upset the US economy.

This could have all sorts of knock-on consequences in terms of inflation and interest rates covered above. The election could also come close to the timing of the UK election, leading to a volatile state for GBPUSD over weeks and months.

Climate – Whilst not a direct market mover itself, acts of god such as natural disasters can be market-moving. For example, earthquakes and tsunamis.

Government policy changes associated with environmental matters may also play a role as well as the climate change events themselves, as a contributor that may influence FX rates in 2024.

Thank you for reading our blog and please contact me or any of our other experts directly to learn more regarding the 2024 outlook and what it means for your FX transactions.

Jonathan

[email protected]