The pound against the dollar is testing the 34th figure again amid a general strengthening of the greenback and a simultaneous weakening of the British currency. Traders focusing on GBP/USD are paying attention not only to geopolitical factors but also to macroeconomic data. On Wednesday, traders reacted to an unexpectedly strong US PPI report, while on Thursday there is data on UK economic growth, which proved very contradictory.
According to the released data, the GDP of Britain increased by 0.3% on a month-on-month basis in March, whereas most experts had predicted an economic contraction of 0.2%. In the first quarter, the British economy grew by only 0.1% quarter-on-quarter (with a forecast of 0.6%) – the same as in the previous quarter. Year-on-year, the GDP volume increased by 1.0%, while most experts expected to see a more modest result (0.8%).
In other words, the released report cannot be definitively characterized as strong or weak – its structure appears quite contradictory.
First, let's consider the strengths of the release.
Firstly, the services sector grew immediately by 0.8% over the quarter. The main contributions came from wholesale trade, the IT sector, and advertising. This indicates that the services sector remains highly active despite inflationary pressures.
Secondly, the construction sector showed positive dynamics after a long period of stagnation. Here, growth was recorded at 0.4%. The particularly sharp growth in March (by 1.5%) is especially impressive, which may signal a recovery in confidence in infrastructure projects.
The third positive aspect is consumer resilience. Despite the GfK consumer confidence index remaining in negative territory (-25 points in April), retail sales in Britain grew by 1.6% over the past three months, which supported overall GDP figures.
Moreover, for the first time in a long time, the growth of average wages (3.6%) after inflation adjustment began to outpace price growth, which theoretically creates a certain "safety buffer" for households.
However, apart from the strengths, the report also contains quite weak components. For example, while the industry improved, the manufacturing sector is essentially stagnant. Thus, while industrial production volume increased by 0.2% in March on a month-on-month basis (a weak but still growth), on a year-on-year basis, the figure was at a zero level (with a forecast of growth at 0.2%).
Additionally, part of the growth may have a temporary, situational character. The Middle Eastern conflict, or rather its economic consequences, played a role here. Many companies in March sought to front-load their purchases and stock in light of risks of supply disruptions and rising energy prices. Purchases of raw materials or components "for stock" are counted by statistical authorities in the components of "investments" and "change in inventories." Such an effect can artificially "lift" the first-quarter figures, but it typically results in a cooling of activity in the following quarter. In other words, in this case, it is not about a full-fledged increase in final demand, but rather about shifting part of future demand into the current period.
Thus, due to its contradictory nature, the released report failed to support the British currency.
However, the GBP/USD pair is under pressure not only due to the contradictory GDP data and the overall strengthening of the greenback (against the backdrop of a surge in risk-off sentiments) – additional pressure on the pound was exerted by recent political events in the UK.
Let me remind you that following the local elections, the ruling Labour Party suffered a painful defeat, losing control over several municipal councils. Such disappointing results (after a convincing victory in the parliamentary elections) intensified intra-party criticism against Prime Minister Keir Starmer and his political course. The intra-party crisis moved into an open phase and on Thursday, resulted in a loud resignation in the Cabinet. Starmer's main rival, Wes Streeting, has stepped down. He is considered one of the most prominent politicians of the moderate wing of the Labour Party. After the party's victory in the national elections, he served as Health Minister for nearly two years and was widely regarded as a potential leadership contender. In his "farewell" open letter to the Prime Minister, he criticized him for lacking a clear political course, calling for a "leadership discussion."
This is a rather alarming signal for the Prime Minister – according to British media, Wes Streeting could gather sufficient support from MPs to call Starmer to account.
The rising political instability and the possibility of a change in the Prime Minister are exerting additional pressure on the British currency.
From a technical perspective, the GBP/USD pair on the four-hour chart is located between the average and lower lines of the Bollinger Bands indicator and below all lines of the Ichimoku indicator, which has formed a bearish "Parade of Lines" signal. Such a technical picture indicates a priority for short positions, with the first and so far main target at 1.3470 (the lower line of the Bollinger Bands on the H4 timeframe).
