US Dollar May Rise Against GBP if UK GDP Data Spooks Markets
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GBPUSD, BREXIT, UK GDP, US DOLLAR – TALKING POINTS
- UK GDP report could spook markets
- US Dollar may gain on risk aversion
- Brexit risks continue to bruise GBP
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The US Dollar may extend gains against the British Pound if preliminary UK GDP data for Q2 undershoots economists forecasts. Year-on-year estimates have growth pegged at 1.4 percent, while the quarter-on-quarter measure shows no change at 0.0 percent. Against the backdrop of a slowing global economy, the UK is also burdened by ongoing Brexit talks which are hurting business confidence.
According to the Citi Group Economic Surprise Index, the UK has been tending to underperform relative to economists’ estimates. It would not be shocking to see local GDP data fall in line with this trend, though notable volatility may only emerge if the report significantly beats or severely undershoots expectations. However, both scenarios may not have a substantial impact on the Bank of England’s monetary policy.
The central bank has had its hands tied by Brexit-related uncertainty because of the potential impact the UK-EU divorce may have on economic growth and inflation. This might explain why overnight index swaps are showing that market participants care close to split down the middle on whether the central bank may deliver a rate cut after the October 31 deadline which is when the UK is schedule to leave the EU.
GBPUSD TECHNICAL ANALYSIS
For the past week, GBPUSD has been moving broadly non-directionally and hovering above critical support at 1.2114. However, the indecision could end if GDP data spooks markets and causes a selloff in Sterling while traders at the same time start piling into the USD amid the uncertainty. A break below this floor with follow-through could result in a selloff if traders lose confidence in GBP’s upside potential.
CHART OF THE DAY: GBPUSD MAY BREAK BELOW KEY SUPPORT LEVEL IF UK GDP DATA SPOOKS MARKETS
GBPUSD chart created using TradingView
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--- Written by Dimitri Zabelin, Jr Currency Analyst for DailyFX.com
To contact Dimitri, use the comments section below or @ZabelinDimitri on Twitter
DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.