- GBP/USD continues to attract buyers for the second consecutive day as the US Dollar weakens slightly.
- The intraday rally lost momentum after disappointing UK macroeconomic data releases.
- Any declines are likely to be limited as traders await the release of the key US Consumer Price Index (CPI) report.
The GBP/USD pair gained follow-through positive traction for a second consecutive day on Wednesday, building on a moderate overnight bounce from the 1.3050-1.3045 area, i.e. a three-week low, but spot prices struggled to capitalize on a move above the 1.3100 level, slipping a few pips in the final hour following the release of UK macro data.
The UK Office for National Statistics reported that economic growth remained flat for a second consecutive month in July, compared to expectations of a modest 0.2% growth. Additionally, UK industrial production unexpectedly fell during the reporting month. This, combined with slowing UK wage growth, has fuelled expectations of further interest rate cuts by the Bank of England (BoE), causing the British pound (GBP) to weaken.
Meanwhile, the US Dollar (USD) has attracted some sellers and for now seems to have snapped a three-day rally to close to a monthly high amid dovish Federal Reserve (Fed) expectations. This provides some support to the GBP/USD pair and helps limit its decline. Traders also seem hesitant to make any aggressive bets, preferring to wait on the sidelines ahead of the release of the US Consumer Price Index.
The important US Consumer Price Index (CPI) report should influence market expectations regarding the size of the interest rate cut by the Fed at its policy meeting scheduled for September 17-18. This will play a key role in driving US Dollar demand in the near term, providing a meaningful impetus to the GBP/USD pair. However, given the aforementioned fundamental backdrop, some degree of caution is advised before bracing for further gains in the currency pair.
Economic indicators
Gross Domestic Product (MoM)
The gross domestic product (GDP) announced by the Cabinet Office is National Statistics It measures the total value of all goods and services produced in the UK over a given period on a monthly and quarterly basis. GDP is considered the main indicator of economic activity in the UK. Month-on-month figures compare economic activity in a reference month with the previous month. Generally, an increase in this figure is a bullish sign for the British Pound (GBP), while a lower figure is considered a bearish sign.
