EUR/GBP trades slight losses below 0.8600 as UK economy expands 0.6% QoQ in Q2

A country’s Gross Domestic Product (GDP) measures the growth rate of its economy over a specific period of time, usually a quarter. The most reliable figures are those that compare GDP with the previous quarter, for example Q2 2023 vs Q1 2023, or with the same period of the previous year, for example Q2 2023 vs Q2 2022. Annualized quarterly GDP figures extrapolate the growth rate of the quarter as if it were constant for the rest of the year. They can be misleading, however, if temporary shocks affect growth in one quarter, but are unlikely to last the whole year – as happened in the first quarter of 2020 when the covid pandemic broke out, when growth fell.

A higher GDP result is generally positive for a nation’s currency because it reflects a growing economy that is more likely to produce goods and services that can be exported, as well as attract greater foreign investment. Likewise, when GDP falls, it is usually negative for the currency. When an economy grows, people tend to spend more, which leads to inflation. The country’s central bank must then raise interest rates to combat inflation with the side effect of attracting more capital inflows from global investors, thereby helping the local currency to appreciate.

When an economy grows and GDP increases, people tend to spend more, which leads to inflation. The country’s central bank must then create interest rates to combat inflation. Higher interest rates are negative for gold because they increase the opportunity cost of holding gold compared to putting money in a cash deposit account. Therefore, a higher GDP growth rate is usually a bearish factor for the price of gold.