Key Points:
The British pound (Symbol: GBPUSD) floated to a one-year high of $1.2985, driven by favourable economic data from both the UK and the US. The pair opened the week with positive momentum as forex traders responded to unexpected growth in the UK and easing inflation in the US.
Picture: GPBUSD reaches one-year high, as observed on the VT Markets app.
The growth in UK
The economic growth in the UK surprised markets with a 0.4% expansion in May, following a flat performance in April. This growth, amid the ongoing political changes in the UK, signalled resilience in the British economy, boosting investor confidence in the pound.
Inflation below expectations in the US
In the US, inflation figures for June came below expectations at 3.0%, down from 3.3% in May. The easing inflation raised hopes that the Federal Reserve might slow down or halt its rate hikes, which caused the US dollar to decline, making it less attractive compared to other currencies.
Market reaction and outlook
The broader macroeconomic view leaned in favour of the GBP, which hit levels last seen in July 2023. The expanding UK economy and falling price pressures in the US drove the GBPUSD pair higher. Additionally, the political climate in the UK added to the pound’s strength as it appeared stable amid the regime shift.
Looking ahead, the upcoming Bank of England (BoE) interest rate decision on August 1 adds a layer of complexity to the potential upside of the GBP. Market expectations are mixed regarding whether the BoE will cut interest rates or maintain the current rates. A rate cut typically lowers the currency’s value as it decreases yields on cash deposits, prompting market participants to seek higher returns elsewhere.
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