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Title: GBP/USD seesaws 30-pip around 1.2200 on better-than-expected Q2 UK GDP

August 12, 2022 02:13 AM ET

By: AnalysisWatch

GBP/USD rose to 1.2200, narrowing its losses from the previous day, after the UK's gross domestic product (GDP) for the second quarter (Q2) contracted less than expected. It is worth noting that the rest of the data, especially the monthly, was better than expected, but the actual values are much too low compared to their predictions.

According to the first estimates of the UK Statistics Authority, UK GDP for the second quarter showed a negative 0.1% compared to a forecast of 0.2% and a prediction of 0.8%. In addition, the details indicate that monthly GDP contracted by 0.6%, compared to 1.3% expected and 0.5% in the previous month.

Industrial production and manufacturing output showed positive year-on-year figures, while the weaker monthly data was better than forecast. The figures failed to renew the optimism of GBP/USD traders, as the Bank of England (BOE) has already expressed fears of economic weakness. Therefore, the quote remains under pressure despite the recent upswing.

On the other hand, the U.S. Dollar Index (DXY) is struggling to defend its rebound from a six-week low after falling for the last five consecutive days. The greenback's previous losses may be related to weak U.S. inflation data and firmer employment figures. However, the refusal of Fed policymakers to welcome the long-awaited change in price pressures seems to challenge the market's optimism.

It should be noted that political uncertainty in the UK following Boris Johnson's readiness to resign, along with Brexit-related pessimism, is putting additional downward pressure on GBP/USD prices. The two final candidates for the post of UK Prime Minister, namely ex-Chancellor Rishi Sunak and Foreign Secretary Liz Truss, are likely to go head-to-head, with the former praising his strategies while the latter pushes for diplomatic terms.

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