GBP/USD analysis as sterling ignores strong UK GDP data
- The GBP/USD pair moved sideways on Wednesday.
- The UK published strong GDP data for May.
- The GDP, manufacturing, industrial, and construction output were better than expected.
The GBP/USD price moved sideways on Wednesday morning as investors reacted to the relatively strong UK GDP numbers. The pair is trading at 1.1893, which is slightly above this week’s low of 1.1810. The price is about 6% below the highest level in June.
UK GDP growth
The UK economy staged a strong recovery in May even as the country continued seeing elevated levels of inflation. According to the Office of National Statistics (ONS), the economy expanded by 0.5% in May after falling by 0.2% in the previous month. This increase was better than the median estimate of 0.2%.
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The economy also jumped in the three months to May. It rose by 0.4% on a QoQ basis, which was better than the median estimate of 0.0%. This translated to a YoY increase of 3.5%, which was also better than the expected 2.7%. According to the ONS, the UK economy expansion was mostly due to a surge in visits to doctors in May.
Other numbers showe that the economy is doing relatively well. Industrial production rose by 0.9% while manufacturing production rose by 1.4%. Construction output rose by 4.7%.
Therefore, analysts believe that the numbers will give the Bank of England (BOE) more cover to deliver a bigger rate hike in the coming meeting. Analysts expect that the bank will hike rates by 0.50%. This will be a significant deviation considering that the bank has been hiking by 0.25%.
Indeed, in a statement on Monday, Andrew Bailey said that the bank will likely deliver a bigger rate hike in the coming meeting. The bank expects that inflation will surge to 11% this year.
The GBP/USD pair will react to the upcoming US consumer inflation data scheduled for Wednesday. The data is expected to show that inflation surged in June.
The four-hour chart shows that the GBPUSD pair made a major bearish breakout this week. It managed to move below the important support level at 1.1935, which was the lower side of the inverted cup and handle pattern. Now, it has done a break and retest pattern by retesting this level, which is now the resistance.
The pair is still below the 25-day and 50-day moving averages. Therefore, the pair will likely continue falling as sellers target the next key support at 1.1800.
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