Pound Sterling hits one-month high as UK GDP data beats estimates

• The Pound Sterling gains against its peers as the UK GDP grew more than expected in June and in the overall Q2.
• The UK's factory sector returned to expansion after contracting significantly in May.
• US Treasury Secretary Bessent said he supports a larger interest-rate reduction by the Fed in September.

The Pound Sterling (GBP) attracts bids against its major peers on Thursday on upbeat United Kingdom (UK) Gross Domestic Product (GDP) and factory data. The Office for National Statistics (ONS) reported that the economy grew by 0.3% in the second quarter of the year, stronger than expectations of 0.1%. In the first quarter of the year, GDP growth was 0.7%.

In June, the UK economy grew by 0.4% after contracting 0.1% in May, while it was expected to rise just by 0.1%.

Factory data has also come in stronger than projected. Month-on-month, Manufacturing and Industrial Production rose by 0.5% and 0.7% in June, respectively, after declining significantly in May.

Upbeat GDP and factory data show that the economy is holding up better than anticipated, a scenario that could allow the Bank of England (BoE) to avoid reducing interest rates aggressively and thus supportive for the Pound Sterling.

In the monetary policy meeting earlier this month, the BoE reduced interest rates by 25 basis points (bps) to 4.00% and retained its "gradual and careful" monetary expansion guidance. Still, it was a very tight decision as four of the nine BoE members voted to keep rates unchanged.

Daily digest market movers: Pound Sterling refreshes monthly high against US Dollar

• The Pound Sterling jumps to near 1.3600 against the US Dollar (USD) during the European trading session on Thursday after the release of the UK GDP data.
• The US Dollar faces selling pressure as traders have become increasingly confident that the Federal Reserve (Fed) will reduce interest rates in the monetary policy meeting in September. At the time of writing, the US Dollar Index (DXY), which tracks the Greenback's value against six major currencies, trades vulnerably near the two-week low around 97.60.
• According to the CME FedWatch tool, traders have almost fully priced in a 25 basis points (bps) interest rate reduction in September that would push borrowing rates lower to 4.00-4.25%.
• Fed interest rate cut expectations have intensified due to cooling labor market conditions and evidence of little impact from tariffs on inflation in the latest Consumer Price Index (CPI) report.
• The US Nonfarm Payrolls (NFP) report showed earlier this month that new jobs created in July were lower than projected, and data for May and June were revised significantly lower. Meanwhile, the CPI report showed on Tuesday that the headline inflation grew at a moderate pace of 0.2% on a month, as expected, slower than the prior reading of 0.3%. The CPI report didn't show any significant signs that the impact of tariffs is feeding into prices.
• On Wednesday, US Treasury Secretary Scott Bessent said, in an interview with Bloomberg TV, that the Fed should follow an aggressive monetary easing, citing labor market concerns. Bessent projected a "series of interest rate cuts" from the Fed and stated that the central bank could deliver a larger, 50-basis-points reduction in the September meeting. "Rates are too constrictive. We should probably be 150 to 175 basis points lower," Bessent said.
• In Thursday's session, investors will focus on the US Producer Price Index (PPI) data for July, which will be published at 12:30 GMT. Month-on-month, headline and core PPI are estimated to have risen by 0.2%, after remaining flat in June. On year, the headline and the core PPI are expected to have grown at a faster pace of 2.5% and 2.9%, respectively.

Technical Analysis: Pound Sterling rises to near 1.3600

The Pound Sterling advances to near 1.3600 against the US Dollar on Thursday, the highest level seen in a month. The near-term trend of the GBP/USD pair remains bullish as it holds the 20-day Exponential Moving Average (EMA), which trades around 1.3445.

The 14-day Relative Strength Index (RSI) breaks above 60.00. A fresh bullish momentum would emerge if the RSI holds above that level.

Looking down, the August 11 low of 1.3400 will act as a key support zone. On the upside, the July 1 high near 1.3790 will act as a key barrier.