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British Pound Falls Over 200 Points As UK Economy Stagnates

The greenback was strong across the majors on Friday, but was especially so against the British pound as UK GDP was revised down significantly.

Indeed, GDP unexpectedly stagnated during Q2 and led the annualized rate of growth to slow to a 16-year low of 1.4 percent. UK expansion was plagued by a 5.3 percent drop in business investment, the first decline in household spending since 2005, and a contraction in industrial production for the second consecutive quarter. While the Bank of England has made a point of discussing their concerns about the upside risks to inflation and intent to maintain price stability, it’s worth wondering how long the central bank is willing to stand aside as the economy falters. The markets are betting that it won’t last for much longer, as Credit Suisse overnight index swaps continue to price in over 50bps worth of rate cuts within the next 12 months. However, I believe that they will wait until the end of the year, if not 2009, before taking such action.

**Want to know what happened in the rest of the majors or view technical support/resistance levels? Check out the Daily Fundamentals in its entirety.