The British pound climbed to $1.329 on Thursday, buoyed by stronger-than-expected GDP data that signaled resilience in the UK economy and eased some of the pressure on the Bank of England to pursue aggressive rate cuts.
Sterling rises after GDP data
The latest figures showed that the UK economy expanded by 0.7% in the second quarter, surpassing forecasts of 0.5%, while annual growth accelerated to 1.3%, also beating expectations. The robust data prompted traders to scale back bets on the extent of monetary easing the central bank might deliver this year, with markets now pricing in a more cautious approach to rate cuts.
While a reduction in interest rates is still anticipated later in the year amid global economic uncertainties and lingering Brexit-related risks, the solid GDP print suggests the economy is not currently weak enough to warrant deeper or more immediate easing measures. Economists noted that the uptick in growth was driven by stronger consumer spending and a recovery in the services sector, helping to offset softness in manufacturing and construction.
Support from weaker US dollar
Beyond domestic factors, the pound also found support from a broadly weaker US dollar, which retreated as speculation grew that the US administration may seek to push for a weaker currency in upcoming trade negotiations. This broader dollar softness lifted most major currencies, with sterling benefiting from the improved risk sentiment and carry trades.
However, not all UK economic indicators painted an entirely optimistic picture. Unemployment edged slightly higher to 4.3%, while wage growth moderated, raising questions about the sustainability of the consumer-driven momentum. Additionally, business investment remained subdued, reflecting ongoing caution amid geopolitical uncertainties and cost pressures.
Nonetheless, for now, the positive surprise in GDP has provided sterling with a reprieve and helped reduce immediate market concerns about an impending economic stagnation or a sharp slowdown, allowing the currency to rebound from recent lows.
