TALKING POINTS: UK GDP, BRITISH POUND, BANK OF ENGLAND, GBP/USD The pound has fallen as the UK GDP data in May fell short of expectations. The UK yield curve has flattened due to softening data, hurting Sterling. Although the GBP/USD pair may be nearing its peak, a short-term bounce is possible. The British Pound dipped a smidgeon when the May UK GDP report fell short of expectations. The economy gained 0.8 percent month over month, falling short of economists’ expectations of 1.5 percent growth. Construction output data, as well as industrial and manufacturing production figures issued accompanying the GDP report, were similarly dismal. This appears to be part of a larger trend. According to Citigroup statistics, UK economic data outcomes have deteriorated relative to forecasts since late May. The British Pound has declined in tandem with a narrowing of the difference between 2- and 10-year Gilt rates, signaling that traders are reading recent news as limiting the Bank of England’s ability to normalize monetary policy. TradingView was used to construct the chart. The release of the June UK CPI report next week represents the next big turning point on the economic data calendar. The headline inflation rate is forecast to rise from 2.1 to 2.3 percent year on year, marking a nearly three-year high. Following last year’s Covid-19 epidemic, BOE Governor Andrew Bailey and his colleagues rejected near-term reflation as a result of transient base effects. The Federal Reserve, on the other hand, has begun to reluctantly accept that price increase has outpaced policymakers’ expectations. The pivotal FOMC policy meeting in June ushered in previously unheard-of rate hikes in the three-year forecast. Markets have gone even further, with Fed Funds futures predicting one hike in 2022 and two more hikes in 2023. GBP/USD DOUBLE TOP REVERSAL TAKING SHAPE? TECHNICAL ANALYSIS GBP/USD Against this backdrop, a bearish Double Top pattern may have formed above the 1.42 number. Near-term positioning, on the other hand, shows the beginnings of a Falling Wedge pattern with positive RSI divergence. This indicates waning bearish momentum and could signal a bounce. Resistance levels in the near future are 1.39 and 1.40. A daily close below the Double Top neckline in the 1.3667-88 zone, on the other hand, would confirm the bearish pattern, signaling a gradual decline to just over the 1.31 figure. In the event that sellers maintain control, a more immediate support cluster lies around the 1.35 handle and will create friction along the route. TradingView was used to construct the chart. TRADING RESOURCES FOR GBP/USD —- Ilya Spivak, DailyFX’s APAC Head Strategist, wrote this article. Use the comments area below to contact Ilya, or follow him on Twitter at @IlyaSpivak./n
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