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Pound breaks higher after in line GDP

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Pound breaks higher after in line GDP

The pound gyrated on Thursday after the government release in line growth numbers, while the yield differential continued to favor a stronger dollar.  Despite news that has been mixed in the US the 10-year yield has backed up toward 2.6% which is more of a reflection of strength in stocks that strength in the US economy.

The UK was the first of the developed countries to report its estimate of second quarter GDP and it came in just as expected at 1.4% year over year. The 0.6% q/q increased in the second quarter is the first  back-to-back increase since late 2012. As expected, the service sector led the way in the recovery. Recent UK data has generally surprised on the upside, the latest being data from British Retail Consortium showing that retail employment rose 3.7% quarter over quarter in Q2.

The small increase in UK economic performance did not alter the dynamic of relative yields, which moved against the UK and in the US’s favor.  The yield differential is still in favor of the US which is capping the gain the pound can make.  The US is schedule to report second quarter GDP next week.  Expectations are for a less than 1% increase in second quarter growth.

The pound initially moved higher on the back of the in line second quarter GDP report.  After testing support near the 10-day moving average near 1.5235, the pound moved higher pushing above resistance levels.

Momentum on the pound is solid with the MACD printing in positive territory.  The trajectory of the index is higher, as the index tests the highs made in June.  The RSI is showing a consolidative tone printing near 53, which is in the middle of the neutral range.

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