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GBP/USD Uninspired by Stronger UK GDP

H.S. Borji
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GBP/USD Uninspired by Stronger UK GDP

The British pound was little changed against its US counterpart Friday, despite revised government data showing the economy grew at a faster annual rate in the second quarter.

Cable traded within a narrow range of 1.6679-1.6701. It would subsequently consolidate at 1.6693, nudging up 0.04 percent. The GBPUSD is supported at 1.6661, followed by 1.6637 and 1.6618. On the upside, resistance is ascending above the long-run averages at 1.6704, 1.6723 and 1.6747.

The pound weakened further against the euro. The EURGBP reached an intraday high of 0.8030 and later consolidated at 0.8022, advancing 0.15 percent. The pair is likely supported at 0.7994, 0.7978 and 0.7957. On the upside, resistance is ascending at 0.8031, 0.8052 and 0.8068.

The British economy expanded at a quarterly rate of 0.8 percent in the second quarter, the Office for National Statistics confirmed today. This translated into an annual gain of 3.2 percent, slightly higher than the 3.1 percent yearly pace reported last month.

Construction output expanded at an annual rate of 4.8 percent in the second quarter, and was largely responsible for the slight uptick in the annualized figure. The earlier estimate suggested construction output was up 4.2 percent over year-ago levels.

The UK economy has grown for six consecutive quarters on the heels of a rapidly improving labour market. Britain is expected to be among the fastest growing developed nations this year. The International Monetary Fund forecasts UK growth at 3.2 percent in all of 2014. The Bank of England, meanwhile, recently boosted its 2014 growth outlook to 3.5 percent from 3.4 percent.

Stronger GDP data have done very little to inspire a pound rally. The pound has lost significant ground against the US dollar and euro over the past month amid signs the BOE would not move to raise interest rates ahead of schedule.

BOE Governor Mark Carney reiterated that point earlier this week when he presented the central bank’s quarterly economic forecast. Carney said policymakers won’t rush to raise interest rates from a record low of 0.5 percent, highlighting geopolitical risks and declining wages in the UK.

“Geopolitical risks have intensified, and structural adjustment continues in the euro area, where growth is expected to be modest,” Carnet said. “Pay growth has been remarkably weak, even as unemployment has fallen rapidly.”

The BOE is on course to begin raising interest rates in the first half of 2015.

Expectations the BOE will delay its inevitable rate hike has sent the pound tumbling. The GBPUSD has declined 2.3 percent over the past month. The euro-to-pound exchange rate has climbed half a percent over the same period.

The BOE next week will release the minutes of the August policy meetings. The central bank has noted a “wide range of views” concerning the level of slack in the economy, leading speculators to believe the Monetary Policy Committee is edging toward a split-vote.

Next week’s minutes could show a divided MPC vote count for the first time in more than three years. At least one member of the MPC is expected to vote for higher interest rates, according to a recent Reuters poll.

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