GBP Rises on Strong UK Economic Growth

The GBP/USD rose following data indicating that the UK's economy grew at its fastest rate in nearly three years in the first quarter of 2024. The Bank of England (BoE) maintained its key interest rate at 5.25%, as expected, while considering potential rate cuts due to signs of easing inflation. BoE Governor Andrew Bailey mentioned that a June rate reduction was possible, contingent on upcoming inflation readings.

The UK economy expanded by 0.6% in the first quarter, the highest growth since Q4 2021, ending a brief recession and boosting Prime Minister Rishi Sunak’s standing ahead of elections. Despite this growth, the UK’s recovery from the pandemic remains one of the slowest among major economies, with GDP only 1.7% above its pre-pandemic level, trailing behind all G7 countries except Germany.

Consumer spending in the UK was weak in April, with Barclays reporting a slowdown in spending growth, the lowest since February 2021. The British Retail Consortium also noted a significant drop in retail sales compared to the previous year. Despite a slight improvement in consumer confidence, retailers anticipate no significant recovery until autumn.

The property market showed signs of increased activity, with the Royal Institution of Chartered Surveyors reporting a rise in homes being put up for sale at the fastest rate since September 2020. Mortgage approvals in March also saw a 20% annual rise. However, house prices have plateaued since the start of the year.

British government bond yields fell, with the two-year gilt yield down by 4 basis points to 4.274%. Market traders now see a 42% chance of a rate cut in June, slightly down from 45%, with year-end rates projected at 4.64%.

The U.S. dollar experienced a slight decline on Monday, stabilizing after recent fluctuations. The dollar exhibited significant volatility last week due to mixed U.S. economic data, which raised uncertainties regarding the timing of potential interest rate cuts by the central bank this year.

As the new week commenced, this volatility is anticipated to diminish, with traders closely monitoring the upcoming U.S. inflation data release. This data is expected to significantly influence short-term market sentiment concerning potential rate cuts. Analysts predict that Wednesday's critical Consumer Price Index (CPI) report will indicate a 3.6% year-over-year increase in underlying inflation, representing the smallest rise in over three years. However, should the inflation reading surpass expectations, it would likely eliminate the possibility of rate cuts for the remainder of the year, thereby strengthening the U.S. dollar.

Data for Technical Analysis (1H) CFD GBP/USD

Resistance : 1.2560, 1.2561, 1.2564

Support : 1.2554, 1.2553, 1.2550

1H Outlook

Source: TradingView

Buy/Long 1 If the support at the price range 1.2544 - 1.2554 is touched, but the support at 1.2554 cannot be broken, the TP may be set around 1.2561 and the SL around 1.2539, or up to the risk appetite.

Buy/Long 2 If the resistance can be broken at the price range of 1.2560 - 1.2570, TP may be set around 1.2575 and SL around 1.2549, or up to the risk appetite.       

Sell/Short 1 If the resistance at the price range 1.2560 - 1.2570 is touched, but the resistance 1.2560 cannot be broken, the TP may be set around 1.2554 and the SL around 1.2575, or up to the risk appetite.

Sell/Short 2 If the support can be broken at the price range of 1.2544 - 1.2554, TP may be set around 1.2538 and SL around 1.2565, or up to the risk appetite.       

Pivot Points May 14, 2024 02:34AM GMT