US and UK to Report Growth Numbers

The ordinarily quiet final reading of GDPs from the US and UK take on new relevance in the wake of the latest monetary policy decisions and recession risks.

A Tale of Two Unions

The US's second-quarter economic growth figure has seen some unusual ups and downs. Typically, the second and final readings are within range of the first report, and the market doesn't react much. But, estimating economic performance in the current environment is somewhat tricky, as there have been multiple surprises and revisions. After initially surprising the upside by coming in at 2.4% compared to 1.8% expected, the second revision cut it down to 2.1%. A further revision lower and closer to the original forecast from economists would fit a recurring pattern of US data initially outperforming and then being revised lower, which could leave investors more worried.

As we end the third quarter, the focus is not turning to the next batch of growth data. The Fed recently doubled its outlook for the economy in the next year. Its GDPNow tracker sees the economy in the current quarter growing at an annualised 4.9%, the best since the pandemic. Even the economic projections of banks and rating agencies (the "blue chip" forecasts, which tend to be more conservative) have trended up to expecting growth of 3% annualised for the quarter. That might offset any minor downgrade to the prior quarter.

The UK Continues to Falter

Meanwhile, the UK is expected to confirm its surprise growth of 0.2% quarterly (or equivalent to around 0.8% in the US metric) after the BOE announced it was effectively ending its rate hiking campaign due to concerns over hurting economic growth. With the US rates above inflation, dollar debt offers a real rate of return for investors. The slightly higher interest rate in the UK is offset by an even larger inflation rate, meaning that investors in UK debt get a negative real rate of return.

The Fed heavily implied that there was still one more rate hike, which would understandably support the dollar. With the BOE potentially being forced to cut rates in the near future if the economy falters, the pound isn't getting an equivalent amount of support. Only one month of the current quarter's GDP measure was reported, but it was below consensus, potentially supporting a trend for weaker growth. That could leave the pound trending lower against the greenback for some time.

Cable Under Pressure After Terminal Wedge

GBP/USD appears to correct a terminal wedge with a throwover in the long term, which typically leads to deep pullbacks towards the 38.2%-61.80% Fibonacci zone of the full leg. This brings the supports of $1.2079, $1.1748 and $1.1419 in focus, along with the round support of $1.20 in the short-to-medium term. A bounce around $1.1834 could see the right shoulder of a head-and-shoulders pattern play out. Conversely, any bullish attempt failing to get past $1.2315 and $1.2690 will unlikely lead to a meaningful move.

Source: SpreadEx / GBPUSD

Key Takeaways

The final readings of GDP growth figures in the US and UK have gained significance due to recent monetary policy decisions and concerns about recession. In the US, second-quarter economic growth initially exceeded expectations but was later revised lower, continuing a pattern of data outperforming and then being downgraded. However, current projections for the next quarter show strong growth, which could offset any downgrade. In contrast, the UK is expected to confirm modest quarterly growth after the Bank of England halted its rate-hiking campaign to avoid impacting economic growth. With potential rate cuts on the horizon, the pound may face downward pressure against the dollar.