The pound remained range-bound against the US dollar yesterday despite the release of poor economic data from the UK. The data published by the UK Office for National Statistics (ONS) indicated a steep decline in industrial production in August.
The UK’s economy also contracted slightly in the same period. In the US, the PPI (producer price index) increased more than anticipated by the market in September. However, the overall gloomy economic scenario restrained speculators from making huge bets on either of the currencies. Overall, the GBP/USD pair traded between 1.0910 and 1.1098 in the past 24 hours.
According to the ONS, the UK’s economy shrank 0.30% m-o-m in August, following a 0.10% GDP growth in July. Economists did not anticipate any change in the GDP rise for August. Likewise, the country’s economy grew by 0.30% q-o-q in the August 2022 quarter.
In a separate news release, the ONS stated that construction output expanded 0.40% m-o-m in August, following an increase of 0.10% in July, but a notch lower than the 0.50% growth anticipated by economists. The reported figure reflects the second month-over-month growth in a row.
The growth in monthly construction output was led by a 1.90% rise in fresh work. However, repair and maintenance posted a 2% m-o-m drop in August. Specifically, sub-sectors such as infrastructure, private industry, and private housing new work grew by 5.30%, 4.30%, and 1.70%, respectively.
Furthermore, the level of construction output stood at 3.20% (or £461 million) higher than pre-pandemic February 2020 levels. In the three months that ended August, construction output recorded a slight growth of 0.10%.
The UK’s industrial production contracted 1.80% m-o-m in August, following a 0.30% decline in July, and disappointed economists who were expecting only a 0.10% decrease in industrial production. At the end of August, industrial production stood 0.90% below its pre-pandemic February 2020 level. The decline was led by three production sectors. Specifically, mining and quarrying fell by 8.20% in August while manufacturing contracted by 1.60% during the same period.
In the previous month, the manufacturing sector posted a small growth of 0.10%. Economists had anticipated only a 0.10% decline for the reported period. Electricity and gas shrank by 0.60%. On the contrary, water supply and sewerage posted flat growth.
The UK trade deficit widened to £7.10 billion in August, from £5.40 billion in July. Exports increased by 2.20% m-o-m in August to £68.20 billion as goods sales rose by 3.90%. Exports of services rose by 0.20%.
Imports grew by 4.30% to £75.30 billion as goods purchases jumped by 5.70%. Imports of services rose by 0.10%.
The data published by the US Bureau of Labor Statistics indicated that the producer price index rose by 0.40% m-o-m in September, following a 0.20% decline in August, and more than twice the forecasts of a 0.20% increase.
The index for final demand goods grew by 0.40% in September, following a 1.10% decrease in August. Likewise, the final demand services increased by 0.40% in September, following a 0.30% growth in August.
On a year-over-year basis, the PPI surged 8.50% in September 2022.
Excluding food, energy, and trade services, core PPI grew by 0.40% m-o-m in September, following a rise of 0.40% in the prior month, and a notch higher than forecasts of a 0.30% increase anticipated by economists. The reported figure reflects the steepest rise since rising 0.50% in May.
On a y-o-y basis, the core PPI jumped 5.60% in September 2022.
The weak UK economic data is expected to keep the pound bearish in the days ahead.
The historical price chart shows that the GBP/USD pair has bounced off the support at 1.0910. The next resistance is projected only near 1.1205. Additionally, the currency pair is trading above its 50-day moving average while the stochastics indicator is expanding toward the bullish zone. Therefore, we expect the GBP/USD pair to continue in an uptrend for the next few trading sessions.
Disclaimer: Any financial trading analysis offered here is our opinion and is not intended as advice or direction for investors. We cannot guarantee the success of any trades made as a consequence of this article, and we encourage traders to incorporate a strong money management strategy to limit losses when they enter the markets. Please use this article as part of your own research before formulating strategies prior to trading.
