- James Knightley, an economist at ING Bank NV
The cable has been moving in a strong uptrend for the last several months. As long as the pair holds above the 1.68-mark, the outlook will remain bullish. In addition to that, technical indicators are supporting the case of further appreciation. The U.K. economy is gaining momentum and everything speaks in favour of the sooner-than-excepted rate hike. Tuesday's GDP report, however, came below analysts' forecasts, and pushed the cable 0.04% lower. The depreciation was short-lived, and the pair climbed back to 1.6819 after a couple of minutes.
The ONS said British GDP advanced 0.8% in the first quarter of this year, accelerating from 0.7% three months earlier. Markets were expecting a 0.9% growth, with some even calling for a 1.0% expansion. On a yearly basis, the economy posted a 3.1% growth, also just under predictions of 3.2%. This level is 0.6% below the peak recorded in the first quarter of 2008. The report also showed that output increased in all three sectors of the economy– services, manufacturing and construction. The only sector that disappointed was agriculture. The data is also bolstering the case this week's reports from Markit will surprise markets to the upside. Record-low interest rates are supportive for the growth, while the recent strength of the Pound is arguing against any early rate hike. All these facts mean that British economy will continue building up the steam in the foreseeable future.
© Dukascopy Bank SA