GBP/USD tests September highs despite huge GDP miss

Sterling advanced on Friday, pushing the GBP/USD pair toward September highs as it was trading near 1.3880 during the London session. The anti-dollar sentiment continues to be the central theme in the markets, helping other currencies to appreciate.

UK data support GBP

Earlier in the day, the Office for National Statistics informed that economic growth in the United Kingdom slowed to just 0.1% in July from 1% in June amid rising Covid cases and materials shortages. Analysts had expected 0.7%. Therefore it was a huge miss. As a result, it leaves the UK economy 2.1% below pre-pandemic levels in February 2020.

After many months during which the economy grew strongly, making up much of the lost ground from the pandemic, there was little growth overall in July. Oil and gas provided the most significant boost, having partially bounced back after summer maintenance. Car production also continued to recover from recent component shortages, ONS deputy national statistician Jonathan Athow said on Friday.

Rising costs and shortages of raw materials pegged back the construction sector again. Jonathan Athow added.

From other news, the British industrial production rose 1.2% month-on-month in July, up from -0.7% in June, pushing the yearly change to 3.8% . On the other hand, manufacturing production decreased to 0.0% from 0.2% previously on a monthly basis, while the year-on-year indicator more than halved to 6% from 13.9% previously.

Lastly, the trade deficit widened to 12.70 billion GBP, from 11.98 billion GBP previously. As previously said, despite most of the data missing estimates or weakening, the Pound remained elevated on the day, capitalizing on the USD weakness.

On Wednesday, the Bank of England Governor Andrew Bailey said that half of the MPC members already believe the minimum conditions for a rate hike have been achieved. Sterling jumped above the 50-day moving average after his remarks.

Bulls in charge

Judging from the recent bullish momentum, it looks like new swing highs are only a matter of time. The initial resistance is located at September highs near 1.39, and if the GBP/USD pair jumps above them, the medium-term uptrend could be confirmed, targeting the 1.40 level in the next leg up.

Another bullish signal could be the breakout above the medium-term bearish trend line, which had capped the GBP/USD pair since June. Lastly, it looks like the Fed might be the most dovish out of the major central banks, possibly undermining the greenback over the following weeks.

The first meaningful support now stands at the 50-day moving average (circa 1.38), and as long as sterling trades above it, the short-term outlook seems bullish.

GBP/USD Daily chart, Source: Author´s analysis, tradingview.com