The UK economy showed solid growth in the last quarter, as higher exports and consumer spending helped to offset the post-Brexit vote uncertainty, official data revealed on Friday. According to the Office for National Statistics' second estimate, the British economy expanded 0.5% in the Q3, in line with analysts' expectations. Business investment jumped 0.9% on a quarterly basis in the three months to September, surpassing the 0.6% rise market forecast. Britain's economy has so far performed much better than expected in the wake of the country's vote to leave the EU.
However, analysts suggest that challenges lie ahead, as higher inflation caused by the steep fall in the value of the British Pound is likely to squeeze consumer spending and increase cost pressures on business. Household spending increased 0.7% in the Q3, slightly below the prior quarter's level but still strong enough to boost the economy. Net trade contributed 0.7% to economic growth in the last quarter, the largest positive reading since the beginning of 2014, driven by higher exports amid the weak Sterling. Compared with the same period one year ago, the economy grew 2.3% in the Q3, meeting projections. Services output advanced 0.8%, while manufacturing and construction output dropped 0.9% and 1.1%, respectively.
Uneventful Monday
GBP/USD to retake 1.25
Last week was a good one for the Cable, as it continued its recovery after a sharp slump in the beginning of October. However, the 1.25 major level remained unconquered, but the GBP/USD currency pair has the potential to reclaim this area today. Technical indicators support this possibility, as they are now giving distinctly bullish signals. Meanwhile, the 55-day SMA, the weekly R1 and the Bollinger band form resistance around 1.26, where the Sterling is likely to struggle at posting more gains. Despite bullish signs, downside risks also persist, as the pair has been trading within the borders of a broadening rising wedge pattern for nearly two months now.
Daily chart
Hourly chart
Traders mostly bullish
Bulls retreated again, as 61% of traders are now long the Pound (previously 63%). The share of sell orders inched up from 60 to 61%.
A similar situation is observed elsewhere. For example, 64% of positions open at OANDA are currently long. This is more than the share of shorts (36%), more than sufficient for the sentiment to be called bullish. Similarly, sentiment at Saxo Bank is also bullish, with 62% of traders being long and 38% being short the Sterling against the US Dollar.
Spreads (avg, pip) / Trading volume / Volatility
Traders expect no major changes
By the end of the next three months traders expect the Cable to be higher than the level where it is now. While the current price is around 1.24, the average forecast for February 28 is 1.2382. Furthermore, the 1.18-1.20, the 1.24-1.26 and the 1.26-1.28 intervals are now the most popular ones, having 12% of the votes each. On the second place in terms of the votes are the 1.16-1.18 (11%) and the 1.20-1.22 (11%) intervals, followed also by the 1.14-1.16 and 1.28-1.30 intervals, both with only 9% of the votes. Moreover, 51% all survey participants believe the Cable is to fall above 1.24.