An upgrade to UK economic growth boosted the GBPUSD exchange rate and faces strong resistance ahead.
GBPUSD – Weekly Chart
GBPUSD on the weekly chart has risen to 1.3089 and is now only 50 pips away from the June 2023 highs. Price action will determine whether we see a continued rally or a correction unfold.
The latest Treasury figures showed forecasters see UK economic growth to rise 1.1% for 2024, up from 0.9% last month. For 2025, forecasts were upgraded from 1.3% to 1.4, on average.
That followed a better-than-expected first half of the year, with GDP ahead of forecasts. At the same time, inflation is expected to slow to the Bank of England’s 2%, leading to further cuts in interest rates.
Capital Economics and Pantheon analysts were two of the most bullish of the seven firms updating their predictions, with each seeing growth at 1.2%. Beacon Economic Forecasting was the most positive, predicting growth of 1.4% for the year. The forecasts are much higher than the IMF’s January prediction that UK growth would come in at 0.6% and the OECD’s May forecast of 0.4%.
UBS is the least confident of the recent updates, forecasting 2024 growth of 0.7%, while the British Chamber of Commerce also expects just 0.8%.
In a note on Tuesday, UBS economist Samuel Adams said that UK GDP growth of 0.7 and 0.6% in the first and second quarters “looks like an economy that is roaring back from its recession at the end of last year”.
However, he warned that “this impression may be deceiving”. “Much of the growth has come from the public sector—unsurprising, given the easing to public sector strikes”.
The UBS analyst urged caution on the latest growth updates until further data is available.
The US dollar was also weaker on Wednesday’s FOMC meeting minutes, which showed officials favoured an imminent rate cut in September.
The minutes from the July 30-31 meeting found the “vast majority” of policymakers “observed that, if the data continued to come in about as expected, it would likely be appropriate to ease policy at the next meeting”.
Weakness in the US dollar and upgrades to the UK economy have led to a continued rally in the British pound. That could come under pressure at the June 2023 highs, which could be hit as early as this week.
