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The British pound has extended its gains on Thursday, as the US dollar continues to retreat against the major currencies. GBP/USD is currently trading at 1.3710, up 0.41% on the day. Earlier, the pair rose to 1.3434, its highest level since September 24th.

GDP rises, but is it enough for a rate hike?

The GDP report for August came in at 0.4%, not a huge gain but an improvement over the July reading of -0.1%. The economy has improved as August was the first full month without Covid-19 restrictions after the government eased lockdown regulations in July. With inflation running well above the BoE’s target and the UK economy within 0.8% of its pre-pandemic level, there are strong reasons in favour of the BoE raising interest rates soon.

The central bank has telegraphed that it is looking to raise rates sooner than previously expected, with BoE Governor Bailey and MPC member Saunders sending hawkish messages earlier this month. The markets have responded by betting on a rate hike before the end of the year. This would be a highly significant move, as the BoE would become the first major central bank to raise rates since the start of the pandemic (apologies to the RBNZ, which raised rates last week). What is a sure bet is that with only six weeks left in 2021, market participants will be following every comment from BoE members ahead of the policy meeting on November 4th, looking for hints as to when the BoE plans to hike.

In the US, the FOMC minutes signalled that the Fed expects to taper its bond purchases in November or December. The minutes noted that the Fed would reduce the USD 120 billion/ month gradually, until the programme was completely terminated by July 2022. Rate fever is also gaining steam in the US, as the markets have brought forward the pricing of a rate hike from December 2022 to September 2022.

GBP/USD Technical Analysis

  • 1.3674 is under pressure in resistance, as GBP/USD has moved higher. 1.3729 is next.
  • There is support at 1.3548. Below, there is support at 1.3477