US and UK Q4 GDP to Impact Cable

With all the turmoil in the banking space, releasing the final US and UK GDP figures could remind the markets of the bigger picture of a still-growing economy.

US Economy Forges Ahead, For Now

The end of last year saw a surprisingly strong economy in the US, despite high inflation and uncommonly tight labour conditions. The first reading showed that the economy grew by 2.9% in the year's final quarter but was later revised towards the end of February to 2.7%. The consensus is that the final GDP will be the same as the second reading, which compares to 3.2% last year.

Attention is shifting to the first quarter as it's coming to an end. The Fed's measure of GDP projections currently estimates that Q1 will come in at 3.2%, an acceleration over the expected final result of last quarter. Despite the better performance lately, the Conference Board still expects the US to slip into a recession starting in the middle of this year, based on an expectation the Fed will keep hiking. It expects a Q1 GDP growth of 1.0%, substantially below the Fed's outlook.

The UK Avoided a Recession, For Now

UK markets were relieved when the first reading for Q4 GDP came in at 0.0%, technically avoiding falling into negative. With Q3 at -0.2%, a flat GDP means the country wasn't technically in a recession. However, there is always a remote possibility that this could be revised in the final reading on Friday, with just one decimal lower technically putting the UK in a recession. After the Chancellor broadly proclaimed that the UK wouldn't have a recession, it's understandable that there is a bit of nervousness about the final revision.

As for the current quarter, the ONS reported that January's GDP has gotten the year off with a good start, growing at 0.3% after dropping 0.5% in December. On the other hand, the OECD isn't as optimistic and forecasts the UK economy to contract by 0.4% this year. This contrasts with the forecasts compiled by the UK government, suggesting a contraction of 0.5% this year. Surveyed forecasters saw the economy shrinking in the first half of the year, expecting an average of -0.5% growth in Q1 of 2023.

Cable in Leading Wedge

Cable might have completed a leading wedge pattern unless it has one more leg higher to conclude the formation. It could go as high as $1.25, given the sloppiness of the upper trendline, with good potential to stop around the previous peak at $1.2450. If prices slide sooner, cable might head towards $1.2010, a typical pullback level in wedges, unless $1.2147 offers a reversal. However, in both cases, this pattern implies further continuation. It's a matter of whether it concludes higher first or it concluded already and will pull back before it continues higher.

Source: Spreadex / GBPUSD

Key Takeaways

The final US and UK Q4 GDP figures could impact Cable as they remind the markets of the still-growing economy. The US economy grew by 2.7% in Q4, with a projected Q1 growth of 3.2%, while the UK technically avoided a recession with a flat GDP of 0.0% in Q4. However, the final revision could put the UK in a recession, and forecasters expect a contraction of 0.5% this year.