The British pound extended its gains, up 0.62%, trading at 1.1996 in Europe. Earlier, the exchange rate for GBP/USD surpassed the symbolic level of 1.20.
A 0.3% increase in UK GDP is reported.
In a light calendar week, the UK posted a modest 0.3% growth in January GDP, higher than the 0.1% estimate in December and above the 0.1% estimate for the month. While the UK managed to avoid recession in 2022, there is uncertainty over whether the economy can stay afloat this year. The pound responded with a 0.50% gain, and the GDP report offered some optimism today.
While the Bank of England will be pleased with an improvement in GDP, policymakers continue to grapple with stubbornly high inflation of 10.1%. The BoE has aggressively fought to reduce inflation, raising the cash rate to 4.00%. The results have yet to impress, with inflation still in double digits.Next month’s Bank of England meeting is expected to result in interest rate increases. Markets have priced a 5% rate, but the central bank is being urged to ease up on tightening. According to Swati Dhingra, one of nine members of the Monetary Policy Committee, further tightening is unnecessary due to falling inflation and the risk of damage to the fragile UK economy from further rate hikes.
The US will release non-farm payrolls for February later today. Despite the rising rate, the labor market remains surprisingly firm, so the blowout January reading of 517,000 is considered a one-time blip. A wide miss on either side of the figure would likely cause volatility from the US dollar, and the February report estimates it at 205,000. It will probably be weak readings that fuel speculation of a Fed pivot, whereas a strong figure will support the Fed’s hawkish stance and will be bullish for the USD.
The Fed and markets will also be watching wage growth. A 4.7% year-over-year increase in average hourly earnings is predicted for February, up from 4.4% in January. That will pressure the Fed to increase the pace of its rate hikes, and if wages continue to rise, it will complicate the Fed’s battle to control inflation.
USD/GBP Technical Analysis
- GBP/USD pushed above resistance at 1.1931. Above, there is resistance at 1.2037
- Support is available in 1817 and 1.1711
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Opinions are those of the authors, not necessarily those of OANDA Corporation or its affiliates, subsidiaries, officers, or directors. Leveraged trading is high-risk and unsuitable, and you could lose all your deposited funds.