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.
Attention remains on US fundamentals
GBP/USD is wary of climbing over 1.25
Even a strong US GDP reading was insufficient for the Buck to post gains against the British Pound yesterday, while the wedge's trend-line successfully caused the Cable to rebound. Nevertheless, the Sterling still failed to maintain trade above the 1.25 mark, as psychological resistance there remains strong. As a result, the GBP/USD pair could struggle to appreciate today, even though technical indicators keep giving distinctly bullish signs. However, the given pair is still supported by the 20-day SMA, the weekly PP and the wedge's lower trend-line, which is expected to remain intact.
Daily chart
Hourly chart
Traders mostly bullish
There are 60% of traders with a positive outlook towards the Pound today, compared to 62% yesterday. At the same time, the portion of orders to sell the Cable decreased from 64 to 56%.
A similar situation is observed elsewhere. For example, 60% of positions open at OANDA are currently long. This is more than the share of shorts (40%), more than sufficient for the sentiment to be called bullish. Similarly, sentiment at Saxo Bank is also bullish, with 64% of traders being long and 36% 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 March 01 is 1.2423. Furthermore, the 1.24-1.26 interval is 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%), 1.18-1.20 (11%), 1.20-1.22 (11%) and the 1.26-1.28 (11%) intervals, followed also by the 1.28-1.30 and 1.30-1.32 intervals, both with only 9% of the votes. Moreover, 52% all survey participants believe the Cable is to fall above 1.24.