On Friday, the GBP/USD exchange rate remained stable, hovering around 1.2712 USD, showing no significant changes compared to Thursday's opening rate. This stability reflects a market in a holding pattern, with traders and investors assessing various economic signals. The US dollar made an attempt to rebound after the release of updated domestic GDP data, which initially provided some optimism.
However, these gains were quickly halted, indicating underlying market skepticism or other countervailing economic pressures. This raises the question of whether there is now an opportunity for the pound to rise to its highs seen earlier this year.
The second estimate of the US GDP for 2024 revealed a growth rate of 1.3%. While this figure aligns with the consensus expectations, it represents a downgrade from the initial estimate of 1.6%. This revision highlights a more cautious economic outlook and underscores a significant decline from the robust 3.4% growth recorded in the third quarter of 2023. This substantial reduction in the growth rate over a few months suggests that the economic momentum seen in the previous year has waned considerably.
The Bureau of Economic Analysis (BEA) provided an explanation for this revision, attributing it to more comprehensive data that were not available for the initial estimate. The primary reason for the downward adjustment was a decrease in consumer spending, which is a crucial driver of economic activity. Reduced consumer spending significantly impacted the overall GDP reading, highlighting vulnerabilities in consumer confidence and purchasing power.
The BEA report emphasized that today's GDP estimate is based on more complete source data than those used for the "advance" estimate released last month, which had projected a 1.6% growth rate. The updated figure mainly reflects a downward revision in consumer spending, indicating a softer economic environment than previously thought.
The disappointing GDP data were attributed to slower growth in key economic components, including consumer spending, exports, and government expenditures. This broader slowdown exerted pressure on the US dollar immediately following the data release. The market reaction suggests concerns over the durability of the US economic expansion and its implications for monetary policy. Slower growth in these areas points to potential challenges in sustaining economic momentum, influencing investor sentiment and currency valuations.
On the other side of the Atlantic, the British pound traded steadily against most major currencies on Friday. This stability was primarily due to the lack of significant economic data from the UK, which left the market without new information to drive trading decisions. The absence of major data releases made it difficult for the pound to attract investor attention, especially in a market environment characterized by caution and uncertainty. Traders were left to navigate the forex market with limited guidance from economic indicators.
Despite the lack of immediate data, the pound found some support from reduced expectations for immediate interest rate cuts by the Bank of England. The announcement of early parliamentary elections in the UK at the beginning of July played a role in diminishing market expectations for a rate cut in June.
This political development added a layer of complexity to the economic outlook, as it could influence monetary policy decisions. Consequently, the pound received modest support as the market adjusted its expectations for future interest rate movements, considering the potential impacts of the upcoming elections.
The "cable" chart, referring to the GBP/USD currency pair, remains in a consolidation phase with support around the 1.2680-1.2700 range and resistance marked by the 1.2760-95 range. This technical analysis suggests that the market is awaiting new impulses to break out of this range. The decline in the odds of a swift rate cut by the Bank of England has already been partially priced in by the pound.
For GBP/USD to rise above 1.28 and challenge the March high of 1.2892, there would need to be broad-based dollar weakness. The markets might be waiting for significant US data, such as the ISM indices and labor market readings, expected next week. These data points could provide the necessary market impetus. However, current technical indicators show some deterioration, suggesting caution among traders as they await these important economic reports.
31.05.2024
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