GBP/USD growth expectation | 15 February 2024

Events to watch out for today:

09:00 EET GBP - Manufacturing Production m/m and GDP q/q

15:30 EET USD - Retail Sales m/m

GBPUSD:

The GBP/USD pair is currently trading at 1.2568, up 0.03% on the day, but remains on the defensive above the midpoint of 1.2500 in the early hours of Asian trading on Thursday. Although the pair bounced off the low of 1.2535, gains are likely to be limited due to weaker UK inflation data. Investors will shift their attention to the UK's fourth quarter (Q4) GDP growth data, which is due for release on Thursday.

Last week's US inflation data was better than expected, which convinced market participants that the road to inflation normalisation will be a long one. In the coming months, Fed officials are expected to take a cautious approach in further assessing the trajectory of inflation. Fed Vice Chairman for Supervision Michael Barr said the Fed remains confident that US inflation is on track to meet the central bank's 2 per cent target. However, Barr emphasises the need for further positive data before advocating an interest rate cut.

In January, the UK Consumer Price Index (CPI) increased by 4% year-on-year, which was below market expectations of 4.2%. The core CPI fell 0.6% on a monthly basis, compared to a 0.4% rise in December. The core CPI, which excludes volatile food and energy prices, rose 5.1% year-on-year in January, slightly lower than the market consensus forecast of 5.2%.

Bank of England Governor Andrew Bailey stated that the low inflation figures for January had left us flat. This caused traders to shift their bets on an interest rate cut. Bailey also mentioned that the central bank is on track to meet its inflation targets, and inflation is expected to fall back to target by spring. Investors are currently estimating a 40% chance that the Bank of England will reduce interest rates to 5.0% during its June meeting. This is a decrease from the previous estimation of 60%, which was based on the impact of stronger-than-expected US inflation data on global financial markets.

Market participants will closely monitor the release of UK Gross Domestic Product (GDP) data for Q4, which is expected to show a year-on-year increase of 0.1%. Additionally, on Thursday, data on UK industrial production and trade balance will be released. In the US, retail sales data, the Fed manufacturing index, industrial production, and weekly initial jobless claims will also be released on Thursday.

Trading recommendation: Opening Buy orders in anticipation of growth

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