GBP/USD FUNDAMENTAL BACKDROP
UK GDP data beat estimates this morning on almost all metrics (see economic calendar below) however, growth is still in decline. On the output side, similar drops were seen in services, construction and production highlighting the frail state of the UK economy.
Looking at the Bank of England (BoE) interest rate probabilities below, a peak rate of 4.48% in August of 2023 is considered too high for many considering the already weak economic backdrop. Housing data yesterday showed falling prices which reflects the higher mortgage rates from interest rate hikes and will get far worse should the BoE follow what markets are pricing in. I estimate the current projections will be revised lower in due course leaving the pound exposed to the subsequent downside.
BOE INTEREST RATE PROBABILITIES
GBP/USD DAILY CHART
The pound reacted minimally to the news ahead of market open which could bring in further price volatility. The initial response is seen as positive for the pound testing the recent swing high at 1.1738 but remains constrained within the developing bear flag formation (black).
Key resistance levels:
- 1.1738.Flag resistance
Key support levels: