British Pound: Growth resilience supports gains against US Dollar – MUFG
MUFG’s Lee Hardman reports the British Pound (GBP) is the best performing major currency in August, with GBP/USD back above 1.3500. The United Kingdom (UK) economy is proving resilient to the energy price shock linked to the US-Iran conflict, with Q2 GDP up 0.4% after 0.6% in Q1.
The British Pound (GBP) has shown remarkable growth resilience, emerging as the top-performing major currency in August, according to MUFG's Lee Hardman. The GBP/USD exchange rate has surpassed the 1.3500 mark, signaling a strong performance by the pound against the US Dollar.
The UK economy has proven to be more resilient than initially anticipated, despite the energy price shock caused by the US-Iran conflict. In the second quarter (Q2), the UK economy expanded by 0.4%, following a 0.6% growth in the first quarter (Q1). This recovery can be attributed to strong private consumption, recovering business investment, and robust services and IT activity.
Following the Brexit vote in 2016 and the COVID shock in 2020, business investment in the UK has regained momentum, providing a favorable boost to the economy. These factors have contributed to the pound's impressive performance throughout the year, making it the best-performing major currency during August.
As the European trading hours commenced on Friday, GBP/USD continued to advance, trading above 1.3500. Conversely, the US Dollar (USD) weakened against the British Pound, partly due to lower-than-anticipated US consumer and producer inflation data, which constrained the Federal Reserve's options for further interest rate hikes.
Traders will closely monitor the US July Retail Sales report and the Consumer Sentiment data later in the day, as these figures could provide additional insights into the state of the US economy and its impact on the USD/GBP exchange rate.
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