By Samuel Indyk
LONDON (Reuters) – The pound rose higher on Wednesday even as data showed economic growth stagnated at the start of the second quarter, as analysts looked beyond one-off factors and still expected the economic recovery to gain momentum in coming months would win.
British economic growth was flat on a month-on-month basis in April, the Office for National Statistics said, partly pressured by the impact of heavy rain on activity throughout the month.
“The picture of a broad-based recovery from last year’s minor recession remains intact, with only the rain-disrupted construction sector failing to grow three months out of three in April,” said Rob Wood, Britain’s chief economist at Pantheon Macroeconomics. .
The pound last rose 0.1% against the dollar at $1.2754.
Pound sterling also gained slightly against the embattled euro, rising to 84.28 pence per euro. On Tuesday, the currency reached its strongest level since August 2022, at 84.185 pence.
The decision to call an election in France has driven the pound against the common currency this week, rather than growth rates, according to FX analyst Kirstine Kundby-Nielsen of Danske Bank.
“Inflation data is a much more important input for the Bank of England,” Kundby-Nielsen added.
Markets are estimating about a 70% chance that the BoE will cut rates before the September meeting, with about 35 basis points of rate cuts priced in this year.
“Given the persistence of inflation, both domestically and globally, combined with political uncertainty in France, we see short-term downsides,” Kundby-Nielsen said.
The US will be the main driver of currency markets in the short term, with inflation data and the Federal Reserve’s policy announcement both due later on Wednesday.
“Due to continued underlying upward pressure on prices from the services sector, our experts believe there is no easing in sight, especially for core rates,” Antje Praefcke, FX analyst at Commerzbank (ETR:), said in a note .
“This is likely to support expectations that the Fed will not cut policy rates until year-end at the earliest.”
