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An end to the short-term recession of the pound

An end to the short-term recession of the pound | 13 May 2024

13 May 2024, GBP/USD

An end to the short-term recession of the pound

GBPUSD:

The GBP/USD pair rose to 1.2520 during the Asian session on Monday, possibly due to improved risk appetite. The Pound Sterling (GBP) was supported by better-than-expected UK Gross Domestic Product (GDP) data released on Friday. The UK economy grew by 0.6% in the first quarter, exceeding forecasts and signaling the end of a brief recession. This economic rebound was the strongest growth in two years.

However, the British Pound ran into trouble after dovish remarks from Hugh Pill, Chief Economist at the Bank of England (BoE). Pill supported the majority view of the Bank of England's Monetary Policy Committee (MPC), which decided to keep interest rates unchanged at 5.25% on Thursday. However, he subsequently expressed growing confidence that a rate cut may be inevitable.

On Tuesday, market participants are likely to await employment data from the United Kingdom (UK): the Claimant Count Change is expected to show an increase in the number of people claiming unemployment benefits in April. In addition, the ILO Unemployment Rate (3M) is expected to show an increase in the number of unemployed in the UK.

This week, investors in the United States (US) will focus on key economic indicators that could be market drivers, including the Consumer Price Index (CPI), Producer Price Index (PPI) and retail sales. On Friday, the US Dollar ran into trouble following the release of the University of Michigan's Consumer Sentiment Index, which fell to 67.4 in May from April's 77.2, a six-month low and falling short of market expectations of 76 points.

However, the magnitude of those losses may have been tempered by a rise in inflation expectations for the year ahead, with the reading at 3.5%, the highest reading in six months, up from April's 3.2%. In addition, the five-year inflation forecast rose to 3.1%, a six-month high, up from 3.0% previously. These inflation figures may have supported a rise in US Treasury yields, which could potentially support the US Dollar.

Trading recommendation: Trade predominantly with buy orders at the price level of 1.2550. We consider sell orders at the price level of 1.2495.

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David Johnson
Analyst of «FreshForex» company
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