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British Pound Rally Takes Pause as US GDP Beats Expectations

GBP/USD has paused on Thursday, after recording gains throughout the week. In the North American session, the pair is trading at 1.3296, down 0.10% on the day. In economic news, there are no major British events. In the U.S., Advance GDP expanded 2.6% in the fourth quarter, above the estimate of 2.2%. Chicago PMI is expected to rise to 57.3 and unemployment claims is forecast to rise to 221 thousand. On Friday, the U.K. releases Manufacturing PMI and Net Lending to Individuals. The U.S. will release Core PCE Price Index and UoM Consumer Sentiment.

With the clock ticking down towards Brexit Day on March 29, there is a flurry of activity in Westminster. Earlier in the week, Prime Minister May made headlines when she announced another vote on the government’s withdrawal agreement, which is scheduled for March 12. If lawmakers reject that proposal, they will vote the next day on two separate proposals – one on a no-deal Brexit, and the second on requesting the EU to extend Article 50 and delay Brexit past March 29. Investors are confident that this makes a no-deal scenario even more unlikely, which has resulted in gains of 2.0% for the pound this week. However, with plenty of turmoil and uncertainty around the Brexit withdrawal, we could see volatility from the pound in the days leading to the parliamentary votes.

The Federal Reserve’s new dovish stance was reinforced by Fed Chair Powell’s testimony on Capitol Hill on Tuesday and Wednesday. Powell preached patience with regard to changes in interest rate levels. The Fed chair stated that the Fed was in “no rush to make a judgment” and made reference to “conflicting signals in the economy”. The labor picture remains bright, with strong hiring and low unemployment. At the same time, consumer spending and business investment have been soft. Powell was optimistic about the U.S. economy, but said that the lower global growth and uncertainty over trade was weighing on the economy. The markets are expecting the Fed to remain on the sidelines in May and June, meaning that the first hike of 2019 may be on hold until the second half of the year.

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