GBP climbs to five-month high despite weak economic data

Chris Lee

The GBP markets responded positively on afternoon trading on Tuesday 11th August as the sterling rose to hit five-month highs.

Industry analysts were baffled by this new-found confidence among currency traders, however, as recent data releases did not indicate that the UK economy was in much better shape than it was a few weeks ago.

In terms of why this seems to be happening, industry analysts appear to be indicating that it might be related to the state of the USD.

When compared to an index of rival currency pairs, the USD fell a solid 0.5%, hitting two-year lows.

Much of this is connected to fears that forex brokers have surrounding the health of the US economy, particularly as President Donald Trump’s administration appears to be struggling to respond to and contain the COVID-19 pandemic.

Although it seems as though the final details of a stimulus package will be settled in the coming days and passed through Congress, this has nevertheless made the currency trading markets quite skittish.

According to industry analysts, the difficulties that the USD is experiencing are good for the sterling, which explains this latest market data.

This is despite the UK economy not being in top shape, and in addition to the UK having its own struggles in containing the spread of the virus.

While the unemployment rate in the UK has managed to hold at around 3.9%, and with retail sales having increased for the second month in a row, there are nevertheless fears that a 7% rally in the GBP over the previous six weeks might be short lived.

This has caused forex traders who are going long on the pound sterling to be a little bit more tentative than usual.

Nevertheless, the GBP has been performing solidly against the USD, which is arguably still a good sign.

In particular, there are fears that the health of the UK economy might begin to slip back slightly as the emergency pandemic measures introduced to protect the economy by the government begin to get rolled back.

In terms of what this means in the long term for UK policymakers, industry experts are somewhat divided.

A number of experts believe that we might see the UK government resort to more serious measures to stimulate the economy – such as cutting interest rates to zero – while others believe that whatever steps they take won’t matter too much with the Brexit deadline looming once again.

One thing that is for certain, however, is that this is only the beginning in what looks set to be a very long period of recovery, and that the UK government and the central bank only have so many tools in their arsenal.

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