Pound Loses Ground As Dollar Strengthens Amid Market Chaos In Europe

The British Pound dropped on Friday versus the U.S dollar, heading for a lower close for the fifth month in a row even after a chain of data released today came out with better-than-expected results. The Cable has been capped below the 1.30000 threshold as the greenback was boosted amid persistent risk-off trades, caused by the Deutsche bank crisis.

The U.K gross domestic product for the second quarter was revised upwards to 0.7%, from 0.6% in the revised GDP reading published on 26th August. The economy has grown at a positive rate for 14 quarters in a row since Quarter 1 (Jan to Mar) 2013. Commenting on the GDP data the Office for National Statistics stated that “There is very little anecdotal evidence at present to suggest that the referendum has had an impact on gross domestic product (GDP) in Quarter 2 2016”.

The positive revision to the second quarter GDP was due to the fact that the gains in services and investment outweighed losses in net exports. Business investment was 0.5% higher than previously estimated, while services grew 0.6%, instead of 0.5%. Net trade dented overall growth by 0.8% as exports fell 1% and imports gained 1.3%.

Also according to the ONS, the U.K. current-account deficit widened in the second quarter as Britain continued to record heavy outflows of investment income. The gap between money coming in and money going out of the U.K was 28.7 billion pounds ($37 billion), equating to 5.9% of GDP in the April-June period, up from 5.7% in the previous quarter.

Signs of an immediate shock to the economy in the wake of the Brexit vote in late-June have not emerged yet. Still, the British economy is expected to witness a sharp slowdown next year as Brexit saps foreign investment and in turn hits hiring. Consumer spending, the engine of growth in recent years, will be affected as a result.

In the U.S, consumer spending was little changed in August, data from the Commerce Department showed on Friday. Household purchases stood still for the first time since January, following a run of strong gains in previous months, as income grew at the slowest pace since February.

The Federal Reserve’s favorite inflation gauge picked up in August. The measure of inflation based on personal consumption expenditures rose 0.1% from the prior month, in line with expectations. On a yearly basis, the PCE index was up 1 percent.

The core prices measure, which strips out food and fuel, increased 0.2% from July and inched up 1.7 percent from August 2015, remaining under the Fed’s 2 percent goal since 2012.

The dollar still remained higher against other major currencies, up 0.34% at 95.75 compared to a basket of six major currencies, as investors have been flocking into safe-haven assets. Rattled by the Deutsche Bank’ selloff, European markets are trading lower and U.S stocks are also set to open lower.

Investors were still eyeing additional economic reports due later in the day including Consumer Sentiment and Inflation Expectations for September by University of Michigan.

Technical Analysis

gbpusd

Fig: GBPUSD H4 technical chart

GBPUSD has been locked between the support at 1.29000 and the resistance at 1.30600 for two weeks. The pair is under downward pressure of the two moving averages placed above the price action and the downtrend line connecting lower highs that has most recently forced the price to reverse lower yesterday.

Trade suggestion

Sell Stop at 1.29500, Take profit at 1.29000, Stop loss at 1.30000

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