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Pound under pressure after UK GDP and trade data

Oscar Williams-Grut
·Senior City Correspondent, Yahoo Finance UK
·3-min read

WATCH: European stocks fall as UK GDP sinks 

The pound came under pressure on Friday after new data showed a decline in trade and the size of the UK economy at the start of the year.

Sterling was down 0.5% against the dollar (GBPUSD=X) by the time stock markets shut in London. The pound was down 0.2% against the euro (GBPEUR=X).

The decline came after data from the UK's Office for National Statistics (ONS) showed GDP shrank by 2.9% in January. While the slump was much better than forecast, the data confirmed that Britain's ongoing national lockdown is having a chilling effect on economic activity.

A separate release from the ONS showed Brexit has also hit trade between the UK and EU. Exports and imports fell by the most on record in January, the ONS said. While other factors such as stockpiling and lockdowns played a part, economists said the underlying trend was worrying.

The FTSE 100 (^FTSE) initially opened lower but closed up 0.4% by mid-afternoon. The index benefited from weakness in the pound — around two thirds of earnings on the FTSE 100 are made in dollars rather than pounds.

Sterling was down 0.5% against the dollar by close of trading day on Friday. Photo: Alberto Pezzali/NurPhoto via Getty Images
Sterling was down 0.5% against the dollar by close of trading day on Friday. Photo: Alberto Pezzali/NurPhoto via Getty Images

"The FTSE 100 is spending Friday making a last-minute bid to rejoin the rebound in risk assets, but while banks have made headway the vitally-important mining sector remains AWOL," said Chris Beauchamp, chief market analyst at IG. "Despite the robust outlook for global demand for raw materials the stronger dollar continues to act as a drag on prices, and thereby on the sector itself."

Elsewhere, European stocks were mixed at the end of the week. The DAX (^GDAXI) fell 0.5% in Germany, retreating from a record high reached on Thursday. The CAC 40 (^FCHI) rose 0.2% in France. Connor C

ampbell, a market analyst at SpreadEx, said there was "an air of hesitation" in Europe.

WATCH: Biden signs $1.9tn stimulus plan into law

Sentiment wasn't helped by a tech sell-off on Wall Street. US stocks have been on a tear over the last few days, spurred higher by growth stocks. But the Nasdaq (^IXIC) was down 1.1% by the time markets shut in Europe. It followed a 2.5% rally for the index on Thursday.

READ MORE: UK economy shrinks less than feared in January

"Government bond yields are rising across the board, led by the US 10 year which has surpassed the 1.60% level again," said Fawad Razaqzada, a market analyst at ThinkMarkets. "This should be – and so far has been – good for the US dollar and bad news for gold and technology shares.

"The 10-year US bond yields have once again crossed the 1.6% mark after President Biden signed off on the latest $1.9trn stimulus plan, which has boosted the prospects of stronger recovery and inflation."

The S&P 500 (^GSPC) was down 0.3%. The Dow Jones (^DJI) gained 0.4%.

READ MORE: UK-EU trade crashes 40% post-Brexit — by most on record

The Hang Seng (^HSI) fell 2.1% overnight in Hong Kong as Beijing moved to tighten its grip on the island city state. China's parliament voted to approve a new law changing the Hong Kong electoral system and giving Beijing the power to veto candidates. The EU said the move "erodes" democracy in Hong Kong, while US President Joe Biden also condemned the changes.

Elsewhere, Asian markets were mostly higher overnight. Japan's Nikkei (^N225) rose 1.7%, the Shanghai Composite (000001.SS) rose 0.5%, and South Korea's KOSPI (^KS11) rallied 1.3%.