Pound Sterling demonstrated resilience against its peers, trading calmly near 1.3420 against the US Dollar following the release of encouraging UK economic data. The currency’s strength in the GBP/USD currency pair is due to strong domestic indicators. Moreover, recent US Dollar weakness has pushed things further in this direction. So this change is a big deal. It arrives as the UK government feels growing economic headwinds, and as it prepares to announce its Autumn Budget in a month’s time.
In other news, UK Industrial Production was reported this morning climbing back 0.4% this month. This figure blew past forecasts, which predicted just a 0.2% increase. In like-mindedness, Manufacturing Production saw a nice jump of 0.7%, beating forecasts of 0.4%. These numbers represent a robust reversal after dropping 1.1% in July. This would indicate that the rebound trend in the manufacturing sector has officially begun. The optimistic tone led to a short-lived rally for the Pound Sterling. In the wake of the GDP data, it spiked to approach 1.3440 against the US Dollar.
Economic Data Boosts Pound Sterling
This week’s economic data out of the UK has given this lagging currency a shot in the arm. The positive monthly increases in Industrial Production and Manufacturing Production further increased investor confidence. In large part, this surge is driving the currency’s upward momentum.
Recent prices GBP/USD is clinging to its big-picture uptrend amid a positive signal from the 14-day Relative Strength Index (RSI). Analysts are cautioning that should the RSI drop below this level, fresh bearish momentum might set in. This situation has the potential to be quite dangerous for the currency. Despite the ongoing uncertainty and unpredictability at home and abroad, today’s readings paint an encouraging picture.
The Pound Sterling has been a rock star. It is currently struggling to clear convincingly the 20-day Exponential Moving Average (EMA) around the 1.3419 zone. The market continues to be on the lookout for any change in sentiment that would reverse the commodity-driven downward trend in the currency.
Short-lived Relief Ahead of Autumn Budget
This recent upward turn in the economic indicators provides only momentary respite for the UK government. Analysts are cautioning what could be a short-lived cushion. In just over a month’s time, the government will announce its next Autumn Budget. This new budget is expected to include tax hikes in order to continue funding simple day-to-day operations.
The Gross Domestic Product, or GDP, is a key measure of economic activity in the United Kingdom. Those recently released numbers suggest the economy is still growing at a modest pace. Additionally, the ILO Unemployment Rate for the three months ending in August rose from 4.7% to 4.8%. This increase makes the economic landscape all the more complicated. Such higher unemployment risks undermining consumer confidence and consumer spending and overall economic performance.
“I continue to see two more cuts before the end of this year,” – Fed Governor Michelle Bowman
Speculation about the timing of the Federal Reserve’s first interest rate cut is driving new exuberance in the equity markets. This expectation has the potential to move markets in dramatic ways. Traders will continue to be on guard as they process how these developments will impact GBP/USD price action.
Uncertain Outlook Amid Technical Patterns
While this week’s upward movement may point to potential recovery, Pound Sterling’s near-term prospects remain murky against background of technical formations evident on daily charts. A Head and Shoulder reversal pattern has formed, foreshadowing a volatile move in either direction. Participants in the markets are watching these trends in parallel with economic indicators as they position themselves for their trading.
Traders will have to keep a close eye on economic data releases and technical analysis. This interplay will be key for trading the GBP/USD pair in the weeks ahead. With the UK government facing its first major budget announcements and the spectre of increasing unemployment, sentiment in the market could turn on a dime.