British pound rises, GDP next

The British pound is showing considerable gains on Wednesday after two days of limited movement. GBP/USD is trading at 1.2839 early in the North American session, up 0.41% on the day.

Has the UK economy turned a corner?

It has been a slow recovery from the coronavirus pandemic for the UK economy. Growth has been weak and the economy went through a shallow recession in the second half of 2023. The services and manufacturing sectors are barely showing growth.

Still, there are signs that the economy is on the way up. GDP rose 0.7% y/y in March and 0.6% in April and May GDP, which will be released on Thursday, is expected to jump 1.2%. If the GDP reading is within expectations, it would indicate that economic growth is improving.

The Bank of England is looking to provide relief to households and businesses, who are straining under interest rates of 5.25%.The BoE has maintained the cash rate for seven straight times and meets next on August 1. The central bank needs to see inflation remain close to 2% and weak economic data before it will press the rate-cut button. If May’s GDP reading posts a strong gain, it could delay plans to lower rates.

In the US, Federal Chair Powell concludes two days of testimony before lawmakers on Capitol Hill. On Tuesday, Powell reiterated that he would not send any signals about the Fed’s rate path, adding that the next move was unlikely to be a hike. The markets are growing more optimistic about an initial rate hike in September, with a probability of 72%, according to CME FedWatch. Just one month ago, the likelihood of a cut was just 45%.

GBP/USD Technical

• There is resistance at 1.2883 and 1.2952
• 1.2750 and 1.2681 are the next support levels