GBP/USD recovers losses despite weaker-than-expected UK economic data

The GBP/USD pair dropped to near 1.1610 after the release of the lower-than-expected UK economic data but recovered from the heated decline. The Gross Domestic Product (GDP) data has expanded by 0.2%, lower than the consensus of 0.5% but remained upbeat than the contraction of 0.6% reported earlier.

Industrial Production has landed lower at 1.1% vs. expectation of 2% and the prior release of 2.4%. Also, the Manufacturing Production data has remained lower than expectations. The economic data is released at 1.1%, lower than the expectations and the prior release of 1.7% and 1.3% on an annual basis.

On a broader note, the cable is advancing firmly after the UK economy chose Liz Truss for the next UK Prime Minister. Her selection for managing UK leadership brought a sense of political stability in the pound zone. Truss has already announced stimulus packages for households to safeguard them against the ramping up energy bills. The ideology behind announcing stimulus packages aiming to reduce taxes and energy bills will leave more purchasing power to them to offset the higher payouts.

Meanwhile, the US dollar index (DXY) is facing barricades around 108.85 on lower consensus for US Consumer Price Index (CPI) data, which will release on Tuesday. The headline CPI is seen at 8.1%, lower than the prior release of 8.5%. While the core CPI that doesn’t inculcate food and oil prices will elevate by 10 basis points (bps) to 6%.

A decline in the price pressures will not halt the spree of rate hikes by the Federal Reserve (Fed). However, it could scale down their hawkish tone as the Fed will have the luxury of avoiding going all in and dictate a subtle rate hike.