GBPUSD is moving in Ascending Triangle and market has reached resistance area of the pattern
Pound Sterling Shines: UK’s Robust GDP Growth Boosts Confidence
The Pound Sterling (GBP) has been performing admirably against the US Dollar (USD) and other currencies, driven by faster UK GDP growth and a reduction in prospects for rate cuts by the Bank of England (BoE). Let’s delve into what’s behind this remarkable performance and what it means for investors.
UK’s GDP Growth Exceeds Expectations
The UK economy is on the rise, expanding at a pace of 0.4% in May, surpassing the estimated 0.2%. This surprising growth has bolstered confidence in the British economy and the Pound Sterling. Investors are now keenly awaiting the US inflation data, which will provide fresh guidance on the Federal Reserve’s (Fed) interest rate path.
GBP/USD Pair Gains Momentum
The GBP/USD pair has rallied, nearing 1.2870, approaching the highest point so far this year. This upward trend is fueled by several factors:
- Weakness in the US Dollar: Speculation is rife that the Fed will start reducing interest rates in September, causing the US Dollar to weaken.
- Positive Outlook for the Pound: The British currency is enjoying an upbeat outlook due to easing concerns about early rate cuts by the BoE and strong UK GDP growth.
Market Movements and Investor Sentiment
The US Dollar Index (DXY), which measures the Greenback’s value against six major currencies, has fallen back after failing to extend its recovery. Fed Chair Jerome Powell’s recent comments have played a significant role in this decline. In his semi-annual Congressional testimony, Powell acknowledged some progress in disinflation but refrained from declaring victory over inflation. He emphasized the Fed’s commitment to price stability, which has somewhat alleviated pressure on the Greenback.
Investors are now turning their attention to the US Consumer Price Index (CPI) for June. This data will offer insights into potential market expectations for Fed rate cuts in September. Economists anticipate that core inflation, excluding food and energy items, grew by 0.2% monthly and 3.4% annually. Headline inflation is expected to have decelerated to 3.1% from May’s 3.3%, with a modest monthly increase of 0.1%.
GBPUSD is moving in Symmetrical Triangle and market has reached lower high area of the pattern
UK Economic Indicators: A Mixed Bag
The UK’s Office for National Statistics (ONS) reported that the economy grew by 0.4% in May, significantly better than the stagnant performance in April. Additionally, monthly Industrial and Manufacturing Production aligned with expectations after a contraction in April. The figures for May show a 0.2% increase in Industrial Production and a 0.4% rise in Manufacturing Production. However, annual figures missed estimates, with Industrial and Manufacturing Production growing at a slower pace of 0.4% and 0.6%, respectively. Despite this, the factory data has returned to a positive trajectory, suggesting a recovery in domestic and overall demand for factory products.
BoE’s Stance on Interest Rates
The BoE has been maintaining a hawkish stance on interest rates, which has further supported the Pound Sterling. BoE policymakers have pushed back expectations of rate cuts in August. Notably, Catherine Mann, a BoE policymaker, warned that the decline in annual headline inflation to the 2% target was merely a “touch and go” situation. She added that price pressures could rise again and remain above the desired rate for the rest of the year. Her stance will remain hawkish until she sees a sustained decline in service inflation and wage growth.
Similarly, BoE policymaker Jonathan Haskel emphasized the need for caution, stating, “I would rather hold rates until there is more certainty that underlying inflationary pressures have subsided sustainably.” This hawkish guidance reflects the BoE’s commitment to ensuring that inflation is brought under control before making any rate cuts.
Summary
The Pound Sterling’s strong performance against the US Dollar and other currencies is underpinned by faster-than-expected UK GDP growth and a hawkish stance from the BoE. The UK economy’s expansion in May and the cautious approach to interest rate cuts by BoE policymakers have boosted confidence in the British currency. As investors await the US inflation data, the market dynamics continue to evolve, highlighting the complex interplay of economic indicators and policy decisions. This ongoing scenario presents both opportunities and challenges for traders and investors, emphasizing the importance of staying informed and adaptable in a rapidly changing economic landscape.
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