The UK GDP data will trigger significant Sterling volatility

The UK GDP releases over the past few quarters have triggered substantial Sterling reactions with big currency moves following the data and there has been a clear bias towards weaker than expected releases. The net risk this time around certainly looks more balanced with potential upside risks. The most recent indicators have certainly suggested that the economy is stabilizing with improvements in business surveys while the housing sector has also shown clear signs of improvement from a very low base. The GDP data is subject to considerable revisions and there will again be the risk of an erratic figure given that much of the data is estimated. Bank Governor Bean commented on Wednesday that the quarterly number would almost certainly be negative and this is certainly the most likely outcome. The overall risks suggest that Sterling will react slightly more to worse than expected data while the data releases suggest that there are slight upside risks for the data with the potential for initial Sterling gains. The best strategy is likely to be to look for selling opportunities from any initial Sterling gains.