GBP/USD has posted strong gains in the Wednesday session. In North American trade, the pair is trading at 1.2986, up 0.89% on the day. On the release front, British shop price inflation posted a gain of 0.1%, the first gain since April 2013. U.S Preliminary GDP jumped 4.2%, beating the estimate of 4.1%. Pending Home Sales disappointed with a reading of -0.7%, well off the estimate of 0.3%. There are no British events on the schedule. On Thursday, the UK releases Net Lending to Individuals and GfK consumer confidence. The U.S publishes personal spending and unemployment claims.
With the Brexit negotiations stalled, investors becoming increasingly jittery about the prospects of the UK economy in the post-Brexit era. On Wednesday, Prime Minister May said that a ‘no deal’ Brexit would “not be the end of the world”, but it’s doubtful that the business sector would second her sentiment. Given the uncertainty over Brexit, the markets pounced on some good news on Wednesday, which came in the form of comments from Michel Barnier, chief Brexit negotiator for the EU. Barnier said that the bloc was prepared to offer Britain a special relationship, which could include foreign and security ties. At the same time, Barnier warned that “there is no single market a la carte”.
The U.S economy continues to sparkle. Preliminary GDP for Q2 was revised upwards to 4.2%, edging above the estimate of 4.0%. This reading was above the initial GDP release of 4.1% back in July. Growth in the second quarter was much stronger than in Q1, which posted a gain of 2.2%. Will the strong data continue in the third quarter? Consumer spending has been strong early in the quarter, but housing data has disappointed, with recent key indicators missing expectations. The strong GDP has not affected the likelihood of rate hikes in the second half of 2018. The Fed has already raised rates twice this year, and a September hike is practically a given, with the CME Group estimating the odds of a hike at 96%. The odds of a December hike currently stand at 70%.
