GBP/USD dips after strong US retail sales

The British pound posted losses earlier but has clawed back and is in positive territory. GBP/USD is trading at 1.2846 in the North American session, up 0.20% on the day.

UK GDP rises for second straight quarter

After sustaining a technical session in the second half of 2023, the UK economy is on a rebound. GDP climbed 0.6% in the second quarter, in line with expectations and a notch lower than the Q1 gain of 0.7%.

On an annualized basis, GDP rose 0.9%, up from 0.3% and in line with the market estimate. The annualized gain was the strongest growth rate since Q3 of 2022.

The strong GDP data comes on the heels of yesterday’s inflation release. CPI for July rose to 2.2%, above the June gain of 2% but below the market estimate of 2.3%.

The strong GDP could mean a pause at the September rate meeting. The markets are expecting the next rate cut in November, after the Bank of England delivered the first cut of the new rate-cutting cycle earlier this month.

US retail sales shines with 1% gain

The US economy may have lost a step but don’t count the US consumer out. Retail sales jumped 1% m/m in July, up sharply from a revised -0.2% and blowing past the market estimate of 0.3%. The strong consumer spending data supports a modest rate cut of 25 basis points.

Last week’s rout in the global markets raised expectations of a massive 50-basis point cut as a response to fears of a deterioration in the US economy. These fears have been allayed somewhat but if the US posts further weak numbers we could see panic return to the markets.

GBP/USD Technical

• GBP/USD pushed above resistance at 1.2838 earlier and is testing resistance at 1.2857. Above, there is resistance at 1.2889
• 1.2706 and 1.2787 are the next support levels