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Looking Towards British GDP Numbers and the Royal Wedding

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While UK consumers may focus more on the British royal wedding coverage, economists and FX traders will be looking towards the release of the UK Q1 GDP data.

Previously in Q4 2010 the UK economy contracted by -0.5%. Some economists have speculated that the major cause for the decline in growth was due to one-off factors such as inclement weather. Recent data releases show the UK economy may be stronger than expected. Last month's retail sales data were stronger, rising 0.2%.

Not all of the reports out of the UK are as rosy as the royal wedding coverage. Today UK CBI Industrial sales came in well below expectations at -11 on a forecast of 4. The report did show some signs of improvement in the manufacturing sector and higher exports.

The wild card for UK growth will be the increase in crude oil prices. While no significant slowdown in global economic growth is expected at current oil prices, an increase towards $150 a barrel would significantly dampen growth expectations.

The UK GDP outcome should have an impact on the Bank of England's decision of when to increase interest rates. Despite consistent inflationary pressures above the 4% target the BOE strives to achieve, the Monetary Policy Committee has refrained from raising interest rates in order to allow the British economy to recovery before shutting off the loose monetary policy. A threat to British economic growth may be a premature increase to the interest rate before the British economy has gained steam. Last quarter's contraction in GDP allowed the bank some breathing room to hold rates steady. Positive growth numbers may force the hand of the BOE to raise interest rates potentially in May or June.

The pound has been bid as a weak US dollar supports further gains in the GBP/USD , though less so today than its European counterpart after the weak CBI sales. Last week the pair stalled at the 1.6600 level and is currently consolidating with support at 1.6420 and 1.6180. Strong GDP numbers should bring further bids to Cable with a target at the 2009 high at 1.7040.

The EUR/GBP is stronger today after the weak CBI sales and the euro remains well bid. Initial resistance is last week's high/today's high of 0.8875, followed by 0.8940 off of the October 2010 high. A breach here would then target the March 2010 high at 0.9100.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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