Sterling remains pressured even as GDP bounces

GBP/USD, H1

UK GDP revised sharply higher in the final reading. The quarterly growth rate was boosted to 5.5% from 4.8% previously, which left the annual rate at 23.6% y/y. The annual comparison is of course distorted by virus developments, but nevertheless the numbers look positive, and while the breakdown showed that government consumption accounted for a part of the revision, the external balance also looked more healthy, with exports rising 6.2% q/q and imports a mere 2.4% q/q.

The picture will likely be different in the third quarter and in particular the fourth, as national delivery problems and the phasing out of the furlough scheme and temporary benefit payments today will weigh on consumption going forward. Against that background, the Q2 GDP reading looks pretty much outdated and won’t change the BoE outlook. Governor Bailey may have signalled that rate could rise even as asset purchases continue, he is likely to wait until next year before actually moving even if inflation looks high.

Cable, after two consecutive significant daily falls and with the pair printing new 2021 lows and testing 1.3400, the recovery continues to be capped by the 21-hour EMA, and trades at 1.3436. The MACD signal line is showing signs of life, but it did that yesterday too, RSI remains weak at 39.40. EURGBP holds for a third day over 0.8600 and trades at 0.8625, even GBPJPY, with a Yen under pressure – trades at 150.40, over 230 pips below Tuesday’s high.