Cable falls to a low of 1.2685 as UK data gets marred by Brexit uncertainty
- UK April GDP -0.4% vs -0.1% m/m expected
- UK April visible trade balance -£12.1 billion vs -£13.0 billion expected
The monthly GDP fall in April was the largest since March 2016 and the details made for some rough reading with ONS attributing a large portion of the drop to a fall in UK car production, which dropped by 24% m/m - the biggest on record.
This is mostly linked to planned shutdowns as a result on Brexit uncertainty but factory output figures definitely didn't help as the stockpiling effect from Q1 fades and the truth is revealed on the underlying strength of the UK's manufacturing and industrial sectors.
I've warned of the bullwhip effect two months ago and this is part of that, with manufacturing output falling by the most in a month since June 2002. Meanwhile, industrial output fell by the most in a month since September 2012.
To add insult to injury, UK trade exports in April fell by 8.4% while imports collapsed by 12.7% in light of the biggest monthly fall in trade volumes for exports and imports since 2006 and 1998 respectively. Blame it on Brexit uncertainty, blame it on global trade wars.
But ultimately, it's all the same and points to significant deterioration in UK economic conditions as we begin navigating through Q2 data.
With that, cable has now fallen below its 100-hour MA (red line) as buyers lose near-term control but is holding at support from the 38.2 retracement level @ 1.2685. However, with the focus about to turn to the Tory leadership contest, the data here is a mere reminder of how much worse things can get for the UK economy if pushed to the brink of a no-deal Brexit outcome by 31 October.
As such, if Boris Johnson remains favourite and continues to talk up his deal or no-deal agenda in the coming weeks, expect that to continue to take a toll on the pound.
