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Will GBP/USD Strengthen on Further UK GDP Analysis?


Pound US Dollar (GBP/USD) Exchange Rate Rallies amid Smaller-Than-Expected GDP Contraction

The Pound US Dollar (GBP/USD) exchange rate is strengthening this morning, following news that the UK’s economy contracted less than expected over May. Furthermore, a bullish market mood is weighing on the safe-haven ‘Greenback’.

At the time of writing, GBP/USD is trading at around US$1.3055, climbing by just over 0.5% from the morning’s opening rates.

Will Volatile Trade Strike GBP Post GDP Data?

The Pound (GBP) is likely to continue trading on analysis of the UK’s GDP data through to the end of the week, as the data calendar is lacking in fresh releases.

While the release did exceed forecasts, showing that instead of the 0.3% contraction forecast, the UK economy only shrank by 0.1%, analysis has been mixed. On the one hand, the smaller than expected contraction has given more room for further tightening, the future outlook remains downbeat.

Market reactions so far have seen Sterling climb against the US Dollar, but it remains to be seen whether or not GBP can maintain this momentum through to the end of the week.

On Friday, due to a lack of impactful data the Pound could be left vulnerable to shifts in risk appetite. Due to Sterling’s increasingly risk sensitive nature, a shift to bearish trade could weigh heavily on GBP rates.

However, if the mood remains upbeat through to the session’s close, Sterling may be able to shrug off any losses and climb against its peers.

Will USD Waver on Signs of Loosening Labour Market?

Following the post inflation rout, the US Dollar (USD) could come under further selling pressure later today. The latest producer price index data is set to print, alongside the latest initial jobless claims.

While US PPI is forecast to have increased by 0.2% over June, this could do little to spark bets on further tightening from the Federal Reserve following the sharp cooldown in inflation.

Furthermore, jobless claims are forecast to have increased, which may provide further evidence of growing slack in the US labour market.

However, if PPI increases more than expected and jobless claims surprise to the downside, the US Dollar could strengthen.

On Friday, the University of Michigan are set to publish their latest consumer sentiment index. For July, a minor uptick is expected.

This increased level of consumer confidence could serve to bring cheer to the US Dollar, as the American economy relies so heavily on consumption. However, if the findings indicate lingering pessimism, these gains could be tempered.

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