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GBP/USD Hits 4-month High on Strong GDP

The British pound has extended its gains on Thursday. GBP/USD is trading at 1.2876 in the European session, up 0.22% on the day.

UK GDP beats expectations

The sun is shining in London today and there’s plenty to smile about besides the pleasant weather. England has punched their ticket to the final of the Euro football tournament and UK GDP was stronger than expected. The British pound headed higher and has hit its highest level since March 8.

The UK economy is showing signs of a rebound after slipping into a recession in the second half of 2023. Annualized GDP jumped 1.4% in May, up from a revised 0.6% in April and beating the 1.2% market estimate. Monthly, GDP improved to 0.4% after zero growth in April and above the market estimate of 0.2%.

The weather has played a significant role in the improved data. April was unusually rainy, which dampened consumer spending. May, however, was the warmest on record which revitalized retail sales.
Inflation has declined dramatically, from 11.1% in October 2022 down to 2% in May, matching the Bank of England’s inflation target. This has raised expectations that the BoE will deliver a rate cut but the central bank remains cautious. The BoE meets next on August 1 and markets expectations are a 50/50 coin toss as to whether the Bank will hold or take the plunge and lower rates.

In the US, Federal Reserve Chair Powell wrapped up two days of testimony before US lawmakers. Powell signaled that the Fed was moving closer to a rate cut decision but it was too early to declare victory over inflation and said “more good data” was needed before the Fed would feel confident lowering rates.

GBP/USD Technical

  • GBP/USD is testing resistance at 1.2872. Above, there is resistance at 1.2897
  • 1.2825 and 1.2800 are the next support levels

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