Pound shrugs as UK economy grew by 0.2%

The British pound is showing little movement on Friday in what has been a very quiet week for the currency. In the European session, GBP/USD is trading at 1.3071, up 0.10% on the day and its lowest level.

The UK economy showed slight improvement in August with a 0.2% m/m gain, after no growth in both June and July. This was in line with expectations and the pound’s reaction has been muted. Services, construction and manufacturing were all in positive territory, as the economy continues to show signs of growth. On a yearly basis, GDP rose 1%, up from a revised 0.9% in August but shy of the market estimate of 1.4%.

The slight rebound in the economy comes at a convenient time for the government, which will release the autumn Budget on October 30. The government is counting on the Bank of England to continue cutting rates in order to boost economic growth. Finance Minister Rachel Reeves has said that kick-starting the weak UK economy is the “number one priority.

The Bank of England delivered its first rate cut of the new cycle in August but stayed on the sidelines in September. The next meeting is on November 7 and the UK releases inflation and employment data ahead of the meeting, which will likely determine whether Bank policy makers feel comfortable making another quarter-point cut.

The US wraps up the week with the producer price index for September. Headline PPI is expected to tick lower to 1.7% y/y, compared to 1.6% in August. The core rate, however, is projected to rise to 2.7%, up from 2.4% in August. With inflation largely beaten, the Federal Reserve’s primary focus has shifted from inflation to employment. Still, an unexpected PPI reading in either direction could have an impact on the movement of the US dollar.

GBP/USD Technical

• GBP/USD is testing resistance at 1.3058. Above, there is resistance at 1.3095
• 1.3023 and 1.2986 are the next support levels

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