British pound listless despite strong GDP

The British pound is drifting on Friday. GBP/USD is up 0.05%, trading at 1.2531 in the European session at the time of writing.

UK GDP rises 0.6%

The British economy grew by 0.6% q/q in the first quarter, higher than the market estimate of 0.4% and above the Q4 2023 decline of 0.3%. This marks a rebound after a mild recession in the second half of 2023. GDP posted its best quarterly growth since Q4 of 2021and was driven by increased expansion in the services sector. On a monthly basis, GDP rose 0.4% in March, up from 0.2% in February and above the forecast of 0.1%. This was its best performance in nine months. The British pound showed little reaction to the GDP data.

The positive GDP report is unlikely to change the BoE’s rate path, which admittedly isn’t all that clear. The modest economic turnaround in the first quarter isn’t expected to be inflationary, which leaves the BoE on course to lower rates later this year.

The Bank of England maintained the cash rate at 5.25% at yesterday’s meeting. The markets were hoping for a signal of a rate cut in June, but Governor Bailey didn’t play along, saying that the central bank needed to see more evidence that inflation will remain low prior to cutting rates. Bailey added he was “optimistic that things are moving in the right direction”, which could be a signal that rate cuts are on the way. The markets have priced a June cut at around 50% and have fully priced a cut in August.

It’s a light data calendar in the US, with UoM Consumer Sentiment the sole tier-1 event. The index is expected to drop to 76.0 in May, down from 77.2 in April.

GBP/USD Technical

• There is support at 1.2499 and 1.2471
• 1.2552 and 1.2580 are the next resistance lines

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