GBP/USD
Following the positive UK GDP numbers, the GBP/USD traded in positive territory in the European morning on Friday. The data from the UK showed that the GDP expanded at an annual rate of 0.4% in the second quarter, better than the market expectation of 0.2%.
Both GDP and UK factory data grew stronger than expectations helping the GBP/USD pair rebound significantly. The factory data showed optimism among producers despite persistently high inflation and tight monetary policy conditions. The stronger-than-expected GDP growth suggests that the economy is resilient enough to avoid recession. The robust economic growth will allow the Bank of England to raise interest rates further.
In the US, the mixed commentary by Fed officials has confused investors, that is why when on Wednesday the Fed releases its July meeting minutes, market participants may have a clearer idea of the bank’s intentions. Last Thursday’s US CPI rates indicated an easing of inflationary pressures which may soften the Fed’s aggressiveness in terms of hiking interest rates further.
Investors are worried that China could retaliate against a ban on US investment in Chinese industries which was announced last Wednesday. President Joe Biden imposed limits on US investments in China in an attempt to limit the country’s ability to develop next-generation military and surveillance technologies that could threaten US national security. A spokesperson of the European (EU) Commission said that they are in close contact with the US administration and are ready to cooperate on the topic, while the Financial Times (FT) suggested that UK Prime Minister (PM) Rishi Sunak will also follow the US in restricting investment to China technology companies.
On Friday, the Producer Price Index (PPI) for final demand in the US increased 0.8% on a yearly basis in July, coming in slightly higher than the market expectation of 0.7%. The US Dollar Index rose slightly higher after this release.
In terms of economic data from the US, we note Tuesday’s retail sales rate for July, Wednesday’s industrial production rate for July, and Thursday’s weekly initial jobless claims figure and the
Philly Fed Business index figure for August.
Expected Volatility – Medium
After positive GDP growth, investors and analysts will turn their attention to Tuesday’s upcoming release of the UK’s labour market data, due out at 06:00 GMT.