Home Forex Market Analysis GBPUSD Analysis: Pound Strengthens After 80-Year High UK GDP Projection

GBPUSD Analysis: Pound Strengthens After 80-Year High UK GDP Projection

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GBPUSD Analysis: Pound Strengthens After 80-Year High UK GDP Projection
  • The US dollar has fallen 7.48% in the last year against the British pound. 
  • There was a 12.22% decline in the business activity (BI) index by the Dallas Fed to 27.3 in June 2021.
  • The UK economy is projected to grow its GDP by 7.6% in 2021 after declining 9.8% in 2020.

The GBPUSD pair added 0.49% as of 3:16 pm GMT on July 26, 2021, from the previous day’s close. It opened at 1.3814 and traded to a high of 1.3828. The dollar has fallen 7.48% in the last year, indicating positive investor sentiment in the strength of the pound post-Brexit. 

US manufacturing outlook

Factory activity for the State of Texas remained constant for July 2021 (MoM) at 31.0, while capacity utilization also stayed unchanged at 29.9. There was a 12.22% decline in the business activity (BI) index for Dallas. It fell to 27.3 in June 2021 (MoM) from a high of 31.1 in May 2021. The index for company outlook also inched 18.38% lower to stand at 22.2.  

Manufacturing Index by the Dallas Fed

Manufacturing Index by the Dallas Fed

A four-month analysis from April 2021 has seen the manufacturing index drop 10 points (-26.81%) from 37.3 to 27.3 in July 2021. However, there was a robust expansion in Q1 and Q2 2021 as compared to Q3 and Q4 2020 when factories had been closed due to the surge in Covid-19 numbers.

With the next release date for the Texas manufacturing survey planned for August 30, 2021, future production prospects dropped 14.18% to stand at 48.4%. Market optimism has been crowded by the surge in the Delta Covid-19 variant that saw future manufacturing indicate a general decline into Q3 2021. 

New home sales

The US dollar was also negatively impacted by a 6.6% decline in sales of new homes for June 2021 (MoM). June’s rate fell to 676,000 from a previous high of 724,000. It failed to beat consensus estimates at 800,000, with the situation indicating an incoming end to the pandemic-fueled purchase of single-family homes.

The rise in construction costs has been attributed to this decline, with softwood lumber in particular surging 300%. Other factors that have fueled this drop include labor shortage and a reduction in affordable lots for home building. Mortgages rates have also risen by at least 0.25 percentage points in June 2021, translating to higher home prices. 

While demand for homes remains high in the US, the sector is still plagued by supply and affordability issues. 

Projected growth in the UK economy

The UK economy is projected to grow its GDP by 7.6% in 2021. Among the G7 countries, the UK performed a dismally shrinking 9.8% in 2020, but market optimism has pushed the pound to record highs. This national income growth is expected to be the quickest since 1941 (80 years difference). As of 8:52 pm GMT, GBP had gained 0.10% against the Canadian dollar and was up 0.21% against the New Zealand dollar.  

The Bank of England (BoE) announced the creation of a digital currency jointly with the UK treasury, with most transactions in the UK going digital. This move is seen to increase the UK’s involvement in blockchain technology and improve bank deposits. Bitcoin, the world’s largest cryptocurrency, surged more than 10% against the US dollar on July 26, 2021, rising to a high of $40,595. 

Technical analysis

The GBPUSD pair formed a pipe bottom with the correction seen to begin on July 21, 2021. We expect a short-term bullish reversal in response to the formation. The upside movement may reach 1.3909. 

GBPUSD chart

From June 2, 2021, there is also an increase in buying volume after a steady decline. The 14-day RSI also shows a rise in buying at 49.16. Failure to get above the local highs, such as 1.3825, may pull the price back to the 1.3580 pipe bottom’s low.

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