GBP/USD Shrugs at UK GDP, Could Drop on US CPI Information

GBP/USD Shrugs at UK GDP, Could Drop on US CPI Information

BRITISH POUND, UK GDP, US CPI, GBP/USD - TALKING POINTS:British Pound largely unimpressed with barely higher UK GDP knowledgeTepid response most l

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BRITISH POUND, UK GDP, US CPI, GBP/USD – TALKING POINTS:

  • British Pound largely unimpressed with barely higher UK GDP knowledge
  • Tepid response most likely displays restricted implications for BOE coverage
  • GBP/USD may flip decrease if US CPI figures surpass expectations

The British Pound was not particularly impressed with first-quarter UK GDP knowledge exhibiting output shed 1.5 p.c, a barely smaller downturn than the 1.6 p.c decline penciled in by economists forward of the discharge. Bigger-than-expected losses have been recorded for consumption and funding.

The exterior sector provided a little bit of silver lining on web, however solely as a result of imports plunged greater than exports. True to Covid-era tendencies for many main economies, an outsized rise in authorities spending was a notable vivid spot. Expenditures rose 2.6 p.c, dwarfing forecasts of a 0.6 p.c rise.

GBP/USD Shrugs at UK GDP, May Drop on US CPI Data

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Sterling’s tepid response to the discharge might converse to its restricted implications for Financial institution of England financial coverage. The outcomes on provide didn’t appear to deviate sufficient from baseline expectations to encourage a repricing of the timeline for stimulus withdrawal.

Certainly, whereas the marginally better-than-expected headline studying was greeted with a little bit of a pop upward, the transfer appeared to battle for follow-through. In the meantime, the passing of occasion threat appeared to encourage a correction in yesterday’s steepening of the UK yield curve, with the 10y-2y yield unfold narrowing.

GBP/USD Shrugs at UK GDP, May Drop on US CPI Data

Chart created with TradingView

Wanting forward, the highlight is more likely to flip to US CPI knowledge. It’s anticipated to point out that headline inflation jumped to three.6 p.c on-year in April from 2.6 p.c within the prior month. That’s broadly seen as reflecting base results, owing to comparisons with the dramatic disinflation of April 2020 amid Covid’s onset.

Realized US inflation readings have more and more outperformed relative to baseline forecasts in current months – with final week’s dramatic pop in wage inflation proven in April’s jobs report being simply the most recent instance. That opens the door for an upside shock which may stoke Fed stimulus withdrawal bets.

Such an end result appears more likely to enhance the US Greenback on the expense of most of its main counterparts, together with the UK unit. GBP/USD is testing resistance within the 1.4138-1.4243 zone, with early indicators of unfavourable RSI divergence hinting that momentum is fading. That will precede a downturn.

Preliminary help is on the 1.40 determine, with a every day shut beneath that opening the door for a take a look at of the 1.38 deal with. Alternatively, a every day shut above 1.4243 would critically set up a brand new 2021 excessive in addition to neutralize the break of rising development help recorded in late March, setting the stage for upside extension.

GBP/USD Shrugs at UK GDP, May Drop on US CPI Data

Chart created with TradingView

British Pound TRADING RESOURCES

— Written by Ilya Spivak, Head APAC Strategist for DailyFX.com

To contact Ilya, use the feedback part beneath or @IlyaSpivak on Twitter

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