Red-hot pound punches past 1.41, GDP next

The pound is in positive territory on Tuesday. In the European session, GBP/USD is trading at 1.4144, up 0.20%.

Pound jumps after Scottish elections

The Scottish National Party (SNP) handily won the Scottish election, but investors sighed with relief as the pro-independence party came up just short of a majority. This means that plans for another referendum on Scottish independence may be delayed, which should ensure political stability for the time being. The pound responded with huge gains of close to 1.0% on Monday.

The British government has given the green light for a further easing of health restrictions, as of May 17. The positive news on the Covid front has also been bullish for the streaking pound.

Attention has shifted to UK GDP for the first quarter, which will be released on Wednesday (6:00 GMT). The market is bracing for a contraction in GDP. This would reflect the lockdown that was in effect for much of the first quarter and had a chilling effect on economic activity. The consensus stands at -1.6% (MoM) and -6.1% (YoY).

Inflation concerns have been dominating the financial markets, sending equities lower and boosting the safe-haven US dollar. The US and China, the world’s two biggest economies and both showing signs of rising inflationary pressures, which is causing jitters for investors.

In China, PPI climbed 6.8% (YoY), above the 6.5% forecast and up sharply from 4.4% in March. The US releases April inflation numbers on Wednesday. The consensus stands at 2.3% for Core CPI (YoY), compared to 1.6% in March. If Core CPI matches or exceeds the estimate, investors may be of the opinion that the Fed may have to tighten policy sooner rather than later, which would be bullish for the US dollar.

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GBP/USD Technical Analysis

• GBP/USD is testing resistance at 1.4137, followed by resistance at 1.4269.
• There are support lines at 1.3859 and 1.3727

For a look at all of today’s economic events, check out our economic calendar. www.marketpulse.com/economic-events/

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