The British pound has taken advantage of broad US dollar weakness and is sharply higher on Thursday. In the North American session, GBP/USD is trading at 1.1925, up 0.71%.
UK GDP expected to rebound
It has been a light data calendar this week in the UK. Friday’s GDP report is the only tier-1 event. The markets are expecting a negligible gain of 0.1% for January GDP, but that will be an improvement from December’s decline of 0.5%. There is ongoing debate as to whether a recession in the UK is inevitable in the first half of this year.
Much will depend on the ability of the Bank of England to curb inflation, which remains stubbornly high at 10.1%, despite the BoE raising the cash rate to 4.00%. The BoE meets next on March 23 and is expected to continue hiking, despite the recession risk, as it has designated inflation as public enemy number one. The markets are expecting more increases and have priced in a peak rate of 5%. Still, there are voices calling for the BoE to take its foot off the rate pedal. Swati Dhingra, one of nine members of the Monetary Policy Committee, said on Wednesday that further tightening was unnecessary as inflation is falling rapidly and that more rate hikes risked damaging the weak UK economy.
The US releases nonfarm payrolls on Friday, a key release that could move the US dollar. After a shocking gain of 517,000 in January, expectations for February have moderated to 205,000. The US released weak employment data today, which may not bode well for the NFP release. The Challenger Job Cuts report noted that US companies laid off 77,700 workers in February, compared to just 15,245 a year earlier. As well, unemployment claims rose to 211,000, up from 190 thousand prior. This was the first time claims rose above 200,000 in eight weeks. A weak NFP reading would fuel expectations of a Fed pivot and would likely push the US dollar lower. Conversely, a strong reading will support the Fed’s hawkish stance and would likely give the greenback a boost.
- GBP/USD is testing resistance at 1.1931. Above, there is resistance at 1.2037
- There is support at 1.1817 and 1.1711
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