POUND STERLING DROPS ON CAUTIOUS MARKET MOOD AS UK GDP GROWTH MATCHES EXPECTATIONS

• The Pound Sterling falls while the UK monthly GDP and factory data broadly met expectations.
• BoE rate-cut expectations for August strengthen on weak Employment data for three months ending January.
• The market sentiment turns cautious as Fed rate cut hopes for June ease.

The Pound Sterling (GBP) weakens in Wednesday’s European session. The GBP/USD pair slips to 1.2780 after the United Kingdom Office for National Statistics (ONS) reported that monthly Gross Domestic Product (GDP) and other factory data for January were broadly aligned with market expectations.

The UK economy grew by 0.2% in January on month after reporting a technical recession in the second half of 2023. This indicates that the recession was shallow and the economic prospects are improving.

Meanwhile, the next move in the Pound Sterling will be guided by cues about when the Bank of England (BoE) will start reducing interest rates. Expectations for the BoE to cut interest rates from August rose due to cooling labor market conditions and easing inflation expectations.