The GBP/USD is trading higher after a broad based reversal in the US Dollar strength that marked the beginning of the week. The next major event risk for the Dollar will be Friday’s US GDP release. But, today, the UK had a GDP release of its own and the results were better than analysts had expected. On a quarterly basis, the UK economy grew by 0.3%. This equates to a yearly rise of 0.6%, and this is the strongest printing since the 4th quarter of 2011. The GBP/USD has seen strong rallies since the release and is now threatening to overtake the key psychological level at 1.55.
The UK economy has been something is an under-reported story, given the massive debt problems in the Eurozone and the historic stimulus programs enacted in Japan. But the Bank of England has also be forging quantitative easing stimulus programs and traders will need to pay attention to macro data out of the UK in order to get a sense of where the GBP is headed next. The data today was strong, and this will take some pressure off of the BoE to enact additional easing measures (which is bullish for the currency). But at the same time, it should be remembered that the British economy is still -2.7% lower than its peak growth rates seen in 2008, so it is clear that the general trajectory of the country’s recovery remains sluggish. This has also been indicated by the loss of the country’s AAA credit rating, so traders should continue to watch central bank comments in order to gain clues for the next long term direction.
Dollar Reversal is Broad-Based
The rally in the GBP/USD is not an isolated instance, as the US currency is even posting losses against the Swiss Franc, Japanese Yen, and Euro – all of which have substantial arguments against bullish rallies. So, the fact that the Dollar is lower against all of these pairs is indicative of the fact that we are seeing more of a Dollar move than simple strength in the GBP. There are fundamental reasons behind the strength in the GBP/USD (the UK GDP figures), so there are more reasons to expect traders to sell the rallies that are currently being seen in pairs like USD/CHF, USD/JPY, and the EUR/USD.