Pound Sterling fell against the major currencies on Friday after the release of the slowdown in UK GDP and low factory numbers for July. Economic growth was flat after a 0.4% increase in June, while manufacturing and industrial production fell 1.3% and 0.9% month-on-month, respectively. The soft economic indicators have raised hopes of additional Bank of England rate reductions later this year, with markets poised to watch closely for the forthcoming monetary policy decision. GBP/USD meanwhile reversed around 1.3550 as dovish Fed talk circulated, with US weekly jobless claims up and inflation figures stable, with investors on their guard and the pound trading sideways.
KEY LOOKOUTS
• Market players will keep a close eye on the BoE’s next interest rate decision, which is likely to hold rates steady at 4%, for clues on possible future reductions.
• The three-month job market data up to July, to be released on Tuesday, may shape Sterling’s short-term outlook.
• Major support is around 1.3140, while resistance remains around 1.3800, with the pair trading within an ascending triangle pattern.
• Weekly unemployment claims, revised Nonfarm Payrolls, and Consumer Sentiment statistics may affect GBP/USD via speculation of Fed rate changes.
Pound Sterling experienced selling pressure following the stagnation of UK GDP growth in July, and the decline in manufacturing and industrial production strengthened fears about the nation’s economic performance. Weak data has fueled expectations of potential future Bank of England rate cuts, and traders also monitor coming employment data for more guidance. Against the US Dollar, GBP/USD retraced close to 1.3550, trading in a sideways trend within an ascending triangle formation, as investors balance dovish Fed hopes in light of increasing US jobless claims and stable inflation. Overall, market sentiment is conservative, as both UK and US economic directions are uncertain.
Pound Sterling fell after UK GDP flat-lined and factory production declined, increasing expectations for possible BoE rate cuts. GBP/USD retraced close to 1.3550 and traded sideways amidst dovish Fed rumors and confused US economic data.
• UK GDP growth was flat in July following a 0.4% increase in June.
• Manufacturing output fell 1.3% MoM, with industrial production dropping 0.9% MoM.
• Poor UK economic data has fueled market rumors of additional Bank of England rate cuts.
• GBP/USD retreated close to 1.3550 during European trading after the GDP release.
• The currency pair trades within an ascending triangle and support is around 1.3140, while resistance is close to 1.3800.
• US weekly jobless claims increased to 263K, the highest in almost four years, and stoked dovish Fed hopes.
• Investors are watching ahead UK labor market data and US consumer sentiment for new market signals.
The Pound Sterling came under sell pressure after the UK economy stagnated in July. GDP growth was stagnant after a weak 0.4% increase in June, while industrial and manufacturing production both fell, indicating weakening economic activity. These weak numbers have increased the likelihood that the Bank of England will discuss further interest rate reductions later in the year to cushion growth. Market players are also closely monitoring future employment releases for further information on the strength of the UK job market.
GBP/USD DAILY CHART PRICE
SOURCE: TradingView
At the same time, global events are driving the performance of the pound relative to the US Dollar. Higher US weekly jobless claims and changes to Nonfarm Payrolls have strengthened expectations of a dovish Federal Reserve, while inflationary pressures remain influencing consumer prices. Further US economic releases, such as consumer sentiment, will be watched by investors and can influence expectations around monetary policy. In general, uncertainty in the UK and US economies is holding traders back and the Pound down.
TECHNICAL ANALYSIS
GBP/USD is currently trading in an ascending triangle pattern, which indicates investor indecision. The horizontal resistance point is around 1.3585, while the rising support line comes from the August 1 low of around 1.3140. The pair is oscillating around its 20-day Exponential Moving Average (EMA) of 1.3487, suggesting a lateral trend. Moreover, the 14-day Relative Strength Index (RSI) is still oscillating between 40 and 60, supporting the absence of clear momentum in either direction. Critical levels to monitor are support at 1.3140 and resistance around 1.3800, which will determine the next major move.
FORECAST
In the shorter term, GBP/USD is likely to continue in a trading range as the market digests the newest UK GDP and manufacturing data. If support around 1.3140 can hold up, then the pound can stabilize and slowly try to probe resistance at 1.3585. Any upside surprises in future UK employment reports or indications of easing US economic momentum would help the pair move higher.
To the negative, additional economic softness in the UK, e.g., weak job data or ongoing declines in industrial production, might place further pressure on the Pound. Or an unexpectedly stronger US economic report or Federal Reserve hawkish comments might weaken GBP/USD, potentially testing the August 1 low around 1.3140. The important triggers should be watched closely by traders to determine the next direction.
