Rising GDP in the UK, and inflation in the US!
Earlier today, we had mixed economic data from the United Kingdom. Let's first review what we had and then check out their effect on the market.
GDP in the second quarter increased 4.8% q/q, which was in line with estimates with a strong recovery from the first quarter with -1.6% q/q contraction. Besides GDP numbers, we had other data as well. Industrial production raised 0.7% monthly in Jun. On the other hand, the Manufacturing production increase was only 0.2%, much less than 0.4% of market expectation, but increased a bit from 0.1% in May.
In an overview, we can see that the UK economy bounced back in the second quarter as restrictions were lifted step by step in this quarter.
In the United States, the Producer Price Index for both headline and Core (Excluding food and energy) popped by 1.0% in July while in annual base, the headline increased 7.8%, and Core inflation raised 6.2%, much more than market expectations and it will affect the CPI and market sentiment in the following months. Besides that, today, we had US initial jobless claims numbers, which decreased 12k to 375k in the week ended August 7 for the third week in a row.
After published data, while the Sterling did not get enough support, the USD Index got stronger with increasing fears of higher inflation. Yesterday's CPI data gave more confidence to the market participant with a slower increase in consumer inflation, but now and after today's data, with increasing producer inflation, we can worry again for upcoming inflation numbers in the coming months.
Market reaction:
Sterling again returned to its weaker position against USD, as UK data was not enough to support. The US dollar safe-haven demand increased as the US ten-year bond yield again grew above 1.363% and regained all its earlier losses. As we can see in the below figures, in the H4 chart, it is moving in a downtrend. Yesterday's correction in the H1 chart, as we can see in the second figure, at its highest level, was under the 50 MA line in the H4 chart. After these data, price again returned under both 20 and 50 MA lines in both H1 and H4 charts, putting the key level of 1.3750 in the spotlight.
GBPUSD (H1)
GBPUSD (H4)
