- The British pound has gained against other currencies as UK GDP rose more than anticipated in June and for the second quarter overall.
- The UK’s manufacturing sector is back in expansion mode following a significant contract secured in May.
- The US Treasury Secretary has expressed support for potential interest rate cuts by the Federal Reserve in September.
The British pound (GBP) is poised to attract interest against major peers on Thursday in light of new UK gross domestic product (GDP) and manufacturing statistics. According to the Office for National Statistics (ONS), the economy has grown by 0.3% in the second quarter, which is considerably stronger than the anticipated 0.1%. For the first quarter, GDP growth had been reported at 0.7%.
In June, the UK economy expanded by 0.4%, bouncing back from a modest rise of 0.1% in May, which was below expectations.
The manufacturing data also exceeded forecasts. Following a significant drop in May, both manufacturing and industrial production saw increases of 0.5% and 0.7% in June, respectively.
This positive outlook for GDP and manufacturing suggests that the economy is performing better than expected. Perhaps this gives the Bank of England (BOE) more leeway to avoid aggressively cutting interest rates, providing some support for the pound.
Earlier this month, the BOE lowered interest rates from 4.00% to 25 basis points (BPS) while maintaining a “gradual and cautious” approach to monetary expansion. This decision was quite contentious, as four out of the nine BOE members voted against any rate changes.
Daily Digest Market Mover: Pound Sterling rises against the US Dollar
- The pound has surged to nearly 1.3600 against the US dollar (USD) during the European trading session after the release of UK GDP figures.
- The US dollar is facing downward pressure as traders anticipate the Federal Reserve will lower interest rates in September. Currently, the US Dollar Index (DXY), which measures the dollar against six major currencies, is near a two-week low around 97.60.
- As per the CME FedWatch tool, traders are almost fully pricing in a 25 basis points (BPS) cut in September, leading rates to drop to between 4.00% and 4.25%.
- This expectation for interest rate cuts from the Fed is fueled by a cooling labor market and recent CPI data showing minimal inflation impact from tariffs.
- The latest Non-Farm Payroll (NFP) report indicated new job creation in July was less than anticipated, along with significant revisions for May and June figures. In addition, the CPI showed a slower than expected monthly inflation rise of 0.3%.
- On Wednesday, U.S. Treasury Secretary Scott Bessent stated in a Bloomberg interview that the Fed should pursue aggressive monetary easing, mentioning concerns about the labor market. He forecasted a “series of interest rate cuts,” suggesting the rates should ideally be around 150-175 basis points lower.
- In Thursday’s session, investors will be looking at the US Producer Price Index (PPI) data for July, set to be released at 12:30 GMT. Both headline and core PPIs are expected to have increased by 0.2% after remaining flat in June, with year-on-year expectations of 2.5% and 2.9%, respectively.
Technical Analysis: Pound Sterling up to nearly 1.3600
The pound reached nearly 1.3600 against the US dollar on Thursday, marking its highest level in a month. The short-term trend for the GBP/USD pair remains bullish, supported by its 20-day exponential moving average (EMA).
The 14-day relative strength index (RSI) has surpassed 60.00, indicating the emergence of fresh bullish momentum.
Looking ahead, the low of 1.3400 from August 11 acts as a key support level, while the high from July 1, close to 1.3790, serves as a significant resistance point.
