GBP PRICE, NEWS AND ANALYSIS:

• GBP/USD is holding its ground despite a strong US Dollar, helped by news that the UK economy is expanding rapidly and expectations of a UK rate increase.
• This means continuing losses for EUR/GBP and gains for GBP/JPY, with the latest UK GDP figures backing up the growth narrative.

GBP OUTLOOK BRIGHT ON ECONOMIC EXPANSION HOPES

GBP is holding its ground against a strong US Dollar as the latest UK GDP data reinforce the picture of a buoyant UK economy.

The figures show GDP growth year/year up 6.9% in August, down from July’s 8.8% but above the 6.7% predicted. That means the UK economy is now within 0.8% of its pre-pandemic size and reinforces expectations that the Bank of England will increase its benchmark Bank Rate to 0.25% from 0.10% by the end of this year.

Source: DailyFX calendar

The statistics were released just a day after the International Monetary Fund forecast that the UK would achieve the fastest expansion of any country in the G7 group of developed countries this year. The IMF also warned of high inflation, essentially backing the need for a rate rise.

This has all helped GBP keep pace with a firm USD that has been boosted by high energy prices, inflation fears and the prospect that the US will likely announce a tapering of its asset purchases next month. The chances of a US rate increase by July next year are now 50/50 judging by market pricing.

GBP/USD PRICE CHART, TWO-HOUR TIMEFRAME (SEPTEMBER 30 - OCTOBER 13, 2021)

Source: IG (You can click on it for a larger image)

Sterling’s steadiness against the USD means it has gained against currencies like the Euro and the Japanese Yen, with EUR/GBP falling and GBP/JPY rising. Looking ahead, those trends look set to continue, although GBP/JPY is now in overbought territory judging by the 14-day RSI.

GBP/JPY PRICE CHART, DAILY TIMEFRAME (MAY 19 - OCTOBER 13, 2021)

Source: IG (You can click on it for a larger image)

Written by Martin Essex, Analyst, 13th October 2021. DailyFX