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Bears Still in Control Cable as GDP Report Fails to Resonate

H.S. Borji
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Bears Still in Control Cable as GDP Report Fails to Resonate

The British pound quickly retreated against the US dollar on Tuesday, as upbeat UK GDP data failed to resonate with investors in the latest sign cable may face bigger declines in the short-term.

The GBPUSD rose to an intraday high of 1.6285. The pair would subsequently consolidate at 1.6209, declining 0.2 percent. The pair is likely to face support at 1.6182 and resistance at 1.6273.

Sterling has declined 0.7 percent against the dollar in the past five sessions, as a combination of market forces continue to favour the greenback. Cable has plummeted 5.5 percent in the last three months amid signs the Bank of England would hold off on raising interest rates in the short-term.

The BOE is concerned about persistently weak earnings growth. Average earnings growth is trending at less than half the rate of inflation, prompting the BOE to remain on the sidelines for the time being.

The Monetary Policy Committee kept interest rates at a record low of 0.5 percent at the September policy meetings. Like in August, the September rate vote was split 7-2, with MPC members Martin Weale and Ian McCafferty once again voting in favour of a rate-hike.

According to Weale and McCafferty, the labour market recovery will serve as a catalyst for higher wages in the near future, which is enough to warrant an immediate rate hike of 25 basis points.

Earlier this month BOE Governor Mark Carney indicated the central bank was warming to the idea of a rate hike. In a speech to the Institute and Faculty of Actuaries General Insurance Conference in Wales, Carney said the “judgment about precisely when to raise Bank Rate has become more balanced” in recent months, and that “the point at which interest rates…. begin to normalize is getting closer.”

In economic data, the UK economy advanced faster than forecast in the second quarter. Gross domestic product grew 0.9 percent in the April to June period, revised up from the previous estimate of 0.8 percent, the Office for National Statistics reported today.

Compared to the second quarter of 2013, the economy grew 3.2 percent, unchanged from the previous estimate.

Separately, business investment surged in the second quarter in the latest sign the UK recovery was becoming more balanced.

Total business investment grew 3.3 percent in the second quarter, more than triple the rate of the first quarter, the ONS said today in a revised estimate.

Year-on-year business investment ,was up 11 percent in the second quarter, following a 6.7 percent advance in the first three months of the year.

In US data, manufacturing activity in the Midwest slowed in September, as production and new orders decreased while inventories reached a 41-month high.

The Chicago purchasing managers’ index declined 3.8 points to 60.5 in September, according to the Deutsche Borse Group. Economists forecast a narrower drop to 62.

Separately, consumer confidence plunged in September, as the outlook on the economy and labour market weakened. The Conference Board’s gauge of consumer confidence declined to 86, falling off a nearly seven-year high of 93.4 in August.

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