UK GDP gives the pound a short term bounce

Daily Currency Update

After a tumultuous week for the pound, dropping against the US dollar by over 6%, Thursday provided a respite for the currency after the release of UK GDP numbers. Compared with the same quarter a year ago, GDP rose by 4.4%, when it was expected to be 2.9%. This supported the pound alongside the intervention on Wednesday by the Bank of England and its short term Gilt buying programme.

There is still some caution surrounding this move, as the options market suggests there is still a 30% chance that GBPUSD could fall below parity by year end. However its promising to note that Truss and Kwarteng are both now due to present their costings for their mini budget sooner than expected. Concerns also remain around Sterling Gilt yields, which is only 260 basis points away from its all-time high of 9.23% reached during the after math of the financial crash in 2009. However, there is hope that the Bank of England's intervention will lower these yields and reduce the cost of borrowing for the government during a time when it needs to fund a £50 billion tax cut.