The British pound has extended its gains and is trading at 1.1996 in Europe, up 0.62%. Earlier, GBP/USD pushed above the symbolic 1.20 level.
UK GDP rises 0.3%
The UK ended a light calendar week on a bright note, as January GDP posted a modest gain of 0.3%, above the estimate of 0.1% and following a -0.5% reading in December. The UK managed to avoid a recession in 2022 but there is uncertainty as to whether the economy can stay above water this year as well. Today’s GDP has provided a bit of optimism and the pound has responded with gains of 0.50%.
The Bank of England will be pleased with the improvement in GDP, as policy makers continue to grapple with stubbornly high inflation of 10.1%. The BoE has been aggressive in its battle to wrestle inflation lower, raising the cash rate to 4.00%. The results haven’t impressed, with inflation still in double digits. The BoE holds its next meeting on March 23 and is widely expected to raise rates. The markets have priced in a peak rate of 5% but there are calls for the central bank to ease up on its tightening. 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 fragile UK economy.
The US releases nonfarm payrolls for February later today. The blowout January reading of 517,000 is widely seen as a one-time blip, although the labour market remains surprisingly strong, despite the bite of rising interest rates. The estimate for the February report stands at 205,000 and a wide miss of this figure on either side will likely result in volatility from the US dollar. A weak reading would fuel speculation of a Fed pivot and likely weigh on the US dollar, while a strong figure would support the Fed’s hawkish stance and should be bullish for the greenback.
The Fed and the markets will also be monitoring wage growth. Average hourly earnings are expected to rise to 4.7% y/y in February, up from 4.4% y/y in January. If wages continue to rise, it would complicate the Fed’s battle to tame inflation and would put pressure on the Fed to ramp up the pace of its rate increases.
- GBP/USD has pushed above resistance at 1.1931. Above, there is resistance at 1.2037
- There is support at 1.1817 and 1.1711
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