The pound fell against the greenback yesterday despite the release of better-than-anticipated GDP data for June. The unexpected decline in US inflation, as per data released a few days back, and the improvement in consumer sentiment enabled the greenback to gain ground against the pound. Overall, the GBP/USD pair declined from a high of 1.2215 to a low of 1.2100.
According to the Office for National Statistics, the UK’s GDP contracted 0.60% m-o-m in June, following a growth of 0.40% in the prior month but bettering the 1.20% decline anticipated by economists.
The decline was led by a 0.5% drop in services. Likewise, production contracted 0.90%, following a growth of 1.30% in May. On a year-on-year basis, the country’s economy expanded 1.90% in June 2022.
Output in consumer-facing sectors remained unaltered in June 2022, following a decline of 0.30% in May. Consumer-facing services stood 4.90% lower than pre-pandemic February 2020 levels in June 2022, while the rest of the services were placed 2.70% higher.
The preliminary data published by the ONS also indicated that the UK’s GDP shrank 0.10% q-o-q in the June 2022 quarter, following an expansion of 0.80% in the March 2022 quarter, but was slightly better than the 0.20% contraction anticipated by economists.
Services declined by 0.40% q-o-q in the second quarter, with human health and social work activities offering the biggest negative contribution. Real household consumption fell by 0.2% in the June 2022 quarter.
In a separate news release, the ONS stated that construction output contracted by 1.40% m-o-m in June, following an increase of 1.80% in the prior month but slightly better than the 2% decrease anticipated by economists. It is the first decline after seven successive months of growth. In volume terms, monthly construction output fell by 1.40% in June 2022, following a 1.80% rise in May 2022.
The fall in monthly construction output was primarily due to a 2% drop in fresh work and a 0.20% decline in repair and maintenance. At the end of June, the level of construction output stood 2.90% (or £414 million) above the pre-pandemic February 2020 level.
Despite the monthly decline, construction output rose by 2.30% in the June 2022 quarter, with fresh work recording a growth of 3.30% and repair and maintenance posting a rise of 0.80%.
Compared with the March 2022 quarter, total construction fresh orders fell by 10.40% (or (£1,355 million) in the second quarter. The reported decline is the steepest quarterly drop in fresh construction orders since 4Q 2020.
The UK’s trade deficit widened to £11.39 billion in June, from £9.12 billion in the earlier month. Exports fell by 4.20% to £56.61 billion as good sales plunged 8%. However, exports of services rose by 0.60% to £27.45 billion. During the same period, imports dropped 0.40% to £69.995 billion as goods purchases fell by 1%. Imports of services grew by 1.50%.
The UK’s manufacturing production contracted by 1.60% m-o-m in June, following an increase of 1.70% in the prior month. Economists had anticipated the country’s manufacturing production to shrink by 1.90% in the reported period.
In the US, according to the preliminary data published by the University of Michigan, the country’s consumer sentiment index improved to 55.10 in August, from 51.50 (final reading) in July, and surpassed the reading of 52.50 anticipated by economists.
Notably, in July 2021, the US consumer sentiment index was 70.30.
Furthermore, the current economic conditions index fell to 55.10 in August from 58.10 in July. However, the index of consumer expectations rose to 54.90, from 47.30.
The unexpected decline in US inflation is expected to keep the GBP/USD pair range-bound with a slight bearish bias in the short term.
The historical price chart indicates that the GBP/USD pair is descending after failing to break above 1.2270. The next support is anticipated only near 1.2060. Additionally, the stochastics indicator is in the bearish zone. Therefore, we are anticipating the currency pair to remain in a downtrend 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.
