Theoretically, we would expect the currency of an economy that just reported a drop in growth to fall; however theory clearly didn’t follow with today’s UK GDP release. The advanced reading of first quarter expansion came in line with expectations with its quarterly measure, but fell short of the official consensus with its annualized figure.
The 2.5 percent pace of growth through the year was a slight miss of economists’ 2.6 percent forecast, but set a three-year low for economic activity nonetheless. It comes as no surprise that the biggest weight on expansion was the cooling in the financial services component (which makes up 28 percent of the economy) to a five-year low given the ongoing credit crunch that forced the BoE to nationalize Northern Rock and offer ever more aggressive liquidity injections. So why the pound rally? Well, considering the IMF has forecasted the worst pace of growth since 1992, traders likely expected much worse.