Sterling slips on day but heads for best month in four years

Sterling slipped to a one-week low versus the euro on Friday after data showed Britain's economy had recorded its weakest annual growth since 2013 in the second quarter of the year, but it was on track for its best month against the dollar in four years. The pound had already been on the back foot earlier in the day after Bank of England Governor Mark Carney said the economy was on track for an interest rate rise in the "relatively near term". That cooled expectations of a hike in November, when the Bank releases its next quarterly Inflation Report.
The pound fell to as low as $1.3357 after the data, but by 1535 GMT had recovered to $1.3410, down just 0.2 percent on the day. It is on track for an almost 4 percent climb versus the dollar since the start of the month, its best performance since September 2013, lifted by dollar weakness as well as a shift to a more hawkish tone from the BoE. Against the euro, it slipped as much as 0.8 percent to 88.41 pence, before recovering to 88.12 pence, still down half a percent on the day.
"There is little...to suggest a long-term reversal of the recent rise in sterling, with the data on the whole merely checking any over-exuberance and providing a timely reminder that the economic backdrop remains a potential source of vulnerability going forward," said David Cheetham, chief market analyst at brokerage XTB.
Friday's data showed year-on-year gross domestic product growth slowed to 1.5 percent in the second quarter from 1.8 percent in the first three months of the year. "Today's GDP figure delivered a stark warning of the trouble that lies ahead for the UK," said Anthony Kurukgy, Senior Sales Trader at Foenix Partners. "The last time the UK GDP figure read 1.5 percent was almost four years ago in an economy that was moving away from the shadows of the 2008 financial crisis. A modern-day crisis now hangs over the UK economy."
Sterling was lifted on Thursday by signs of progress in divorce negotiations between Britain and the EU, with the bloc's chief negotiator Michel Barnier saying the two sides had "had a constructive week", though they were "not there yet". "In light of recent favourable developments, we judge that upside risks for the pound are building heading into year-end," wrote MUFG currency economist Lee Hardman in a note to clients.