GBP/USD Outlook: UK Economy Recovers from July Downturn

  • The UK economy rebounded somewhat after a sharp decline in July.
  • Investors estimate the likelihood of the BOE resuming hikes after November at less than 25%.
  • The September US consumer price index data will likely show a decreased inflation last month.

The GBP/USD outlook is slightly bearish as the outlook for the British economy remains bleak. Data revealed that the UK’s economy rebounded somewhat after a sharp decline in July. Still, the overall outlook remained one of slow growth due to last year’s high inflation and 14 consecutive interest rate hikes by the Bank of England. 

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Notably, economic output grew by 0.2% in August compared to July, in line with economists’ expectations from a Reuters poll.

The decline in July, influenced by rainy weather and strikes, was more severe than initially estimated, showing a 0.6% drop rather than the initial 0.5% figure. The last time the economy contracted by more than this monthly was in June of the previous year. It was linked to a one-time holiday marking Queen Elizabeth’s 70th year on the throne.

August’s growth reduces the risk of a recession starting as early as July-September. However, investors estimate the likelihood of the Bank of England resuming rate hikes after its upcoming November meeting at less than 25%.

Meanwhile, on Thursday, the US dollar hovered near a two-week low in anticipation of US inflation data. The report will influence the Federal Reserve’s next policy moves. Moreover, the September US consumer price index data will likely show a decreased inflation last month.

GBP/USD key events today

The UK will not release any major reports after the GDP report. Therefore, investors will focus on US releases, including:

  • The US Consumer Inflation Report.
  • The initial jobless claims.
  • The crude oil inventories report.

GBP/USD technical outlook: Bullish trend softens with weakening momentum.

GBP/USD technical outlook
GBP/USD 4-hour chart

The bullish move on the 4-hour chart has progressed above the 1.2250 resistance level. However, bears are also showing some strength in the move. Although the price is pushing higher above the 30-SMA, the RSI has paused and is moving sideways. This is a sign that bullish momentum has weakened. 

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Therefore, it might be harder for bulls to reach the next resistance level at 1.2400. Bears might get strong enough to retest the recently breached 1.2250 key level. Moreover, the trend direction might change in the event of a break below the 30-SMA.

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