- GBP/USD initially spiked up before retreating on the UK data-dump.
- UK Q2 GDP contracted 0.1%, monthly statistics remained fairly mixed for June.
- US dollar weakness initially helped cable bulls but Fed’s resistance to welcome inflation probed upside momentum.
- First impressions of the US Michigan Consumer Sentiment Index for August will be eyed to confirm inflation-linked optimism.
GBP/USD takes rounds to 1.2200, paring intraday losses, as the UK’s second quarter (Q2) Gross Domestic Product (GDP) shrank less than expected. It’s worth noting that the rest of the data-dump statistics, mainly monthly, marked better-than-expected figures but the actual readings are way too low than their priors.
That said, the headline UK Q2 GDP flashed -0.1% QoQ figures versus -0.2% forecast and 0.8% previous readings, per the first estimations from the UK’s National Statistics. Additionally details suggest that the monthly GDP contracted 0.6% MoM versus -1.3% expected and 0.5% prior. Further, the Industrial Production and Manufacturing Production readings marked upbeat YoY figures while reporting the softer monthly data, which are better than forecast disappointed. The figures couldn’t renew optimism for the GBP/USD traders as the Bank of England (BOE) has already conveyed fears of economic weakness. Hence, the quote remains pressured despite the latest rebound.
Also read: UK Manufacturing Production drops 1.6% MoM in June vs. -1.8% expected
On the other hand, the US Dollar Index (DXY) struggles to defend the bounce off a six-week low after declining for the last five consecutive days. The greenback’s previous losses could be linked to the downbeat prints of the US inflation data and firmer employment figures. However, the Fed policymakers’ resistance to welcoming the much-awaited change in price pressure seems to challenge the market’s optimism.
It should be noted that the UK’s political uncertainty, after Boris Johnson’s readiness to step down, joins the Brexit-linked pessimism to exert additional downside pressure on the GBP/USD prices. Recently, the final two candidates for the UK Prime Minister’s (PM) post, namely ex-Chancellor Rishi Sunak and Foreign Minister Liz Truss, are likely head-to-head as the former lauds his strategies while the latter pushes for diplomatic conditions.
Having witnessed the initial reaction to the UK data dump, the GBP/USD traders should wait for the preliminary reading of the US US Michigan Consumer Sentiment Index for August, expected at 52.5 versus 51.5 prior, for clear directions. Also important will be the chatters surrounding inflation and the Fed’s next move.
Technical analysis
The GBP/USD pair’s further weakness aims for the 21-DMA support around 1.2090. However, a clear downside break of the previous resistance line from mid-June, around 1.1940 at the latest, could challenge the bears afterward. Meanwhile, recovery moves remain limited until crossing an 11-week-old downward sloping resistance line, at 1.2245 by the press time.