On Monday, the pound against the dollar reached a three-month price high, marking 1.3570. This price movement is due not only to the general weakening of the greenback but also to the strengthening of the British currency. After some fluctuations, the market interpreted last week's UK GDP growth data in favor of the pound, thereby strengthening GBP/USD buyers' positions.
The release was contradictory, although overall it was strong enough for the pound. It was reported that the UK economy grew by 0.4% quarter-on-quarter in the second quarter, following a growth of 0.6% in the first quarter. The annual GDP growth rate accelerated to 1.2%.
The key driver of growth remains the services sector, which increased by 0.5% quarter-on-quarter. Significant contributions came from information and communication services, as well as professional and scientific activities. Notably, nearly half of the quarterly increase in GDP was attributed to the information and communication sector. This indicates that the British economy is supported not only by traditional consumer demand but also by the technology segment.
Attention should also be paid to the structure of demand. Consumer spending rose by 0.3%, while business investments increased by 1.7%. The private sector largely drove growth, whereas government consumption decreased by 0.3%. Real GDP per capita increased by 0.4% quarter-on-quarter and by 1.0% year-on-year, signaling some improvement in real economic dynamics.
On the same day, UK GDP growth data for June was released. Following a flat performance in May, the economy unexpectedly grew by 0.3% (while most analysts had forecasted a flat result). However, this dynamic was partly attributed to temporary factors, with increased consumer activity during the World Cup contributing to the figures.
Among the weaknesses of the release are the actual slowdown compared to the first quarter and the very uneven structure of growth. The manufacturing sector showed zero growth in the second quarter, while construction only added 0.3%. Additionally, the decline in government consumption and ongoing issues in industry indicate a lack of widespread economic acceleration.
Nevertheless, GBP/USD traders interpreted the report in favor of the British currency, as it effectively confirmed the resilience of the UK economy and reduced arguments for a faster loosening of Bank of England policy.
In this context, upcoming macroeconomic releases take on special significance for the pound. Strong data will bolster the British currency, as it will reduce expectations of further monetary policy easing—at least in the context of the upcoming central bank meeting. On the other hand, weak data will bring the "dovish" scenario back to the agenda for the English central bank.
Thus, on Tuesday, August 18, key labor market data will be released in the UK. The consensus forecast suggests the unemployment rate will remain at 4.9%, while average wage growth is expected to be 4.5% year-on-year (after a decline to 4.3% in the previous month). This component is particularly interesting for traders, as sustainable wage growth indicates persistent internal inflationary pressure. If the wage indicator meets the forecast level (let alone enters the "green zone"), the pound will receive significant support, even if other release components disappoint.
The next day, on Wednesday, key inflation growth data will be published in the UK. In June, the overall consumer price index decreased to 2.6% year-on-year, reaching a yearly low. However, a rise in the overall CPI to 3.0% is expected in July (with other estimates suggesting a rise to 2.9%). The core index is expected to remain at June's level, that is, at 2.6%. It is worth noting that the BoE has already warned of a likely acceleration in inflation in the second half of the year; according to its forecast, CPI could rise to around 3.2% year-on-year in the fourth quarter due to the carryover effect of higher energy prices. Therefore, a July result above consensus would serve as an additional (and quite strong) argument for the pound, as it would confirm the resilience of inflationary pressure.
Finally, on Friday, August 21, retail sales data will be released in the UK. After a 1.0% month-on-month spike in June, a 0.4% corrective decline is expected in July. A weaker result could pressure the pound, as it would cast doubt on the resilience of consumer demand. However, if the figure remains above zero, the pound will be "on a roll": strong sales dynamics will confirm economic resilience, especially in light of positive GDP data.
Thus, despite GBP/USD's confident rise, the pound is currently at a crossroads. If the most bullish scenario plays out (wages above 4.5%, CPI at 3.0%, and "non-zero" retail sales), the pair may test the nearest resistance level at 1.3600 (the upper line of the Bollinger Bands indicator on the daily chart). The technical picture signals a priority for this scenario, as the price on the D1 chart is between the middle and upper Bollinger Band lines and above all Ichimoku indicator lines, forming a bullish "Parade of Lines" signal.
Conversely, weak data could exert significant pressure on GBP/USD, reinforcing "dovish" expectations regarding the BoE's next actions. In such a case, the pair would likely return to the base of the 35-figure— to the support level of 1.3500, where the Tenkan-sen line on the D1 chart intersects.
