British pound closing in on 1.39

The British pound is in positive territory for a second successive day. GBP/USD is currently trading at 1.3883, up 0.35% on the day.

The markets were treated to a data dump out of the UK today, with the highlights being GDP and Manufacturing Production. Investors shrugged off a weak GDP for July, as the economy expanded a negligible 0.1%. This was below expectations and much weaker than the 1.0% gain in June. On a more positive note, GDP grew by 3.6% in the three months to July, due to the reopening of much of the services sector in July. Manufacturing Production came in as expected at 6.0% (YoY), as manufacturing continues to expand.

In the US, inflation remains a critical issue for the markets, which means that US inflation indicators are being closely watched and should be treated as market-movers. The US will release the Producer Price Index (PPI) for August, with the consensus at 8.2%, compared to 7.8% in July. Inflation remains red-hot in the US, but the Fed insists that the jump is transitory and that inflation will ease. However, if we continue to see inflation rising in the final months of 2021, the markets will become more sceptical of the Fed’s stance, and policymakers may have to adjust monetary policy in order to curb inflation, which is well above the Fed’s target of 2%.

The Federal Reserve Beige Book, which was released ahead of the FOMC meeting on September 21-22, points to a bumpy road for the US economy. The report stated that the economy “downshifted slightly” in August as the Delta variant of Covid took a toll on the services particularly, dining, travel and tourism. At the same time, the report stated that the unleashing of demand has resulted in rising prices and labor shortages. Importantly, the report casts doubts on the Fed stance that inflation is transitory, and we could see more Fed members begin to question this view in the coming weeks and months.

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GBP/USD Technical Analysis

• There is resistance at 1.3924. Above, there is resistance at 1.3988, just below the symbolic line of 1.40
• On the downside, we have support at 1.3763 and 1.3666

For a look at all of today’s economic events, check out our economic calendar. www.marketpulse.com/economic-events/

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