Anna 
In the face of discouraging data from the UK manufacturing sector in August, GBP/USD managed to maintain its gains, indicating resilience amidst challenging economic conditions. The Office for National Statistics (ONS) reported a second consecutive contraction in UK factory data, reflecting decreased demand and a drive among businesses to optimize their operations by reducing inventory backlogs and workforce.
Industrial output fell by 0.7% on a monthly basis, a far cry from the expected 0.2% decline. During the same period, manufacturing production managed only a meager increase of 0.4%. In July, factory data had contracted by more than 1%. On an annual basis, industrial production showed a modest rise of 1.3%, below expectations of 1.7%, although it was an improvement from the previous month’s 1%. Manufacturing production performed similarly, registering an annual rate of 2.8%, still falling short of expectations and July’s readings of 3.4% and 3.1%, respectively.
While the UK economy faces a higher-than-ideal rate of inflation, surpassing 3%, Bank of England (BOE) policymakers are confronted with an impending interest rate decision in November. BOE officials, Katherine Mann and Swati Dhingra, express divergent opinions on the path forward. Mann advocates aggressive interest rate policies to bring inflation down to the target of 2% while also mitigating rising inflation expectations. In contrast, Dhingra believes that the British economy has “leveled off” and suggests a readiness to cut interest rates if economic growth slows more than expected.
Ongoing uncertainties in the Middle East and the potential involvement of Iran in the Israel-Hamas conflict pose threats to global supply chains, potentially fueling energy shortages and contributing to overall inflation. British Prime Minister Sunak’s pledge to halve the inflation rate to 5.2% may face challenges under these circumstances.
The U.S. Dollar Index (DXY) is stabilizing below the key resistance level at 106.00, which has now transformed into a formidable barrier. It is poised for fluctuations in anticipation of the release of consumer inflation data for September, following robust producer inflation reports earlier in the week.
Expectations for another Federal Reserve (Fed) rate hike have grown after the release of minutes from the Federal Open Market Committee (FOMC) meeting, revealing broad support for further monetary tightening. As market sentiment improves, the pound has held steady above the crucial resistance level of 1.230, despite looming global uncertainties. The short-term trend has turned bullish, with GBP surging above the 20-day Exponential Moving Average (EMA) at 1.2280.
