GBP/USD Gains On US Inflation, Surprise Sign of UK Growth

GBP/USD Price, Analysis, and Charts

• The Pound gained on the Dollar as did many other currencies Friday
• Relaxing US inflation has buoyed hopes that rate hikes could end soon
• UK Growth beat expectations, but expectations were pretty low

The British Pound rose against the US Dollar on Friday following more benign inflation data out of the world’s largest economy and some surprise growth at home.

US price rises eased for a sixth straight month in December according to official data released on Thursday. This has traders and investors more sure than ever that the bulk of interest rate rises are now behind them and that, although there will likely be more, the pace will slow. This view contrasts with that of many other developed economies, especially those more exposed to price rises linked to the war in Ukraine, notably the Eurozone. There, rates are thought to have further to rise, and both the single currency and Sterling rose after the US Data.

UK Growth Manages Upside Surprise

There was some rare home-grown cheer for the pound Friday in the news that its own economy continued to expand in November, if only by a whisker. Gross Domestic Product Growth was 0.1% when the markets had been looking for a 0.2% contraction. The champagne can be safely left on ice, however, as manufacturing and industrial production missed expectations. The UK economy certainly doesn’t look like one fit for much higher borrowing costs and interest rate support for sterling is likely to remain fitful as the economic numbers trickle out. Continued poor labor relations and the prospect of recession, possibly accompanied by a degree of ‘stagflation’ will keep the Pound a nervous bullish bet. The Bank of England won’t give its next policy decision until February 2.

However, it is notable that London-listed stocks have rallied with global peers on hopes that the US rate-hike cycle could be ending. The blue-chip FTSE 100 index got close to all-time highs on Friday. The extent to which this index is any sort of bet on the UK economy is debatable, however, given the number of large international names which make it up.

GBP/USD Technical Analysis

GBP/USD Chart Compiled by David Cottle Using TradingView

It’s clear from the daily chart that, although GBP/USD fell conclusively below its previously-dominant uptrend channel thanks to the precipitous fall seen on December 15, the bulls have retained a strong measure of control.

Falls since that date have been contained with this week seeing an uptick in sterling’s fortune. While GBP/USD remains underpinned at present, the pound looks a little stretched at current levels and some consolidation may be needed before it can push on decisively higher and eye those mid-December peaks again.

For now support looks likely in a band between the psychological 1.2000 level and 1.2120. The market traded narrowly within this range between December 22 and January 3. The pound’s ability to hold above or in this range as week’s end approaches could be an important clue for any near term attempt at its recent highs.

IG’s own client sentiment index finds the market net-short of GBP/USD now, if not by much, with a 53%/47% split reported by respondents.

---By David Cottle for DailyFX