GBP/USD Forecast: Sterling set to suffer further downside with GDP growth disappointing

• UK first quarter GDP disappointed rising merely 0.1% Q/Q compared to 0.4% Q/Q expected.
• With GDP growth decelerating sharply the chances of the Bank of England hiking rates on May 10 diminished to a minimum. 
• After breaking support level of 1.3765, the next target for GBP/USD is 1.3700.

The GBP/USD is trading down -0.7% at around 1.3825 against the US Dollar after the first quarter GDP data in the UK fell short of the market expectations. With the UK GDP decelerating sharply in the first quarter, the chances of a rate hike are diminishing greatly weighing on Sterling.

The UK GDP was expected to increase 0.4% over the quarter during the first three months of this year, but it rose mere 0.1% over the quarter, much less than expected.

The bigger picture on GBP/USD is formed by the interest rate expectations that have shifted to the downside after the disappointing trinity of the most important macro releases in the UK with wage growth, inflation, and the retail sales in March falling short of expectations. On top of it it was the Bank of England Governor’s speech last week that left all options open for the Monetary Policy Committee for its upcoming policy meeting on May 10, when the Bank also releases its quarterly macroeconomic forecasts in the Inflation Report. The Inflation Report is followed by a press conference with the Bank of England Governor Carney justifying the policy decision with markets betting on the timing of the rate move for the Inflation Report release.

Technically, the GBP/USD broke below the 1.3865 key support line representing the 38.2% Fibonacci retracement of a large move from 1.3040 to 1.4377 on Tuesday last week. Breaking the important support level for GBP/USD brinks the next 50% Fibonacci level of 1.3700 into the spotlight as a next target.

GBP/USD 1-hour chart