GBP/USD on the cusp of a bullish breakout after UK GDP data

The GBP/USD price was in a tight range after the mixed economic numbers from the UK and a hawkish Fed official statement. The pair was trading at 1.3815 on Thursday, where it has been since Wednesday. The EUR/GBP and GBP/AUD pairs were also little changed.

UK economy cooling

The UK economy is cooling as the government winds down some of its pandemic response measures and as the number of Covid cases rose.

According to the Royal Institution of Chartered Surveyors, the number of new buyers for UK homes declined for the first time in four months. Other recent numbers from Nationwide and Halifax have showed that house prices have started slowing down.

Still, the data by RICs showed that the demand for rental houses remained steady for the fifth straight month. Also, most agents said that the industry is doing well. 

The numbers came a few hours after the Office of National Statistics (ONS) showed that the economy expanded substantially in the second quarter. The UK economy rose by 4.8% on a quarter-on-quarter basis in Q2 after slumping by 1.6% in the previous quarter.

The economy bounced back by 22.2% on a year-on-year basis after it declined by 6.1% in Q1. Still, this sharp increase was mostly because the UK economy was in lockdown in the same quarter of 2020.

Meanwhile, the GBP/USD reacted to other UK data. For example, construction output declined by 1.3% in June after falling by 0.7% in the previous month. Industrial production rose from 0.6% to 0.7% while manufacturing production rose to 0.2%. 

The GBP/USD reacted mildly to a relatively hawkish statement by a voting member of the Federal Reserve. In an interview with the Financial Times, Mary Daly, said that the bank was inclined to start tightening later this year. The Fed is buying bonds and mortgage-backed securities (MBS) worth $120 billion per month.

GBP/USD technical analysis

The 4H chart shows that the GBP/USD pair has been in a tight range since Wednesday when the US published mixed inflation data. The price is slightly above the 38.2% Fibonacci retracement level and is at the same level as the 25-day and 50-day moving averages.

The pair has also formed a bullish flag pattern. Therefore, there is a possibility that it will break out higher in the near term. If this happens, the next key level will be this month’s high of1.3980, which is also along the 61.8% retracement level.