On Thursday (July 11th) during the European trading session, the GBP/USD exchange rate was reported at 1.2875/76, an increase of 0.21%. Earlier today, the latest monthly GDP data for the UK unexpectedly rose, with all three sectors - services (+0.3%), manufacturing (+0.2%), and construction (+1.9%) - expanding.

It is estimated that the actual gross domestic product (GDP) for the three months ending May 2024 increased by 0.9% compared to the three months ending February 2024. This is the strongest three-month growth since January 2022. The service industry output was the main contributor, increasing by 1.1% during this period, while production output did not increase and construction output decreased by 0.7%. It is estimated that the monthly real GDP growth in May 2024 was 0.4%, while the data for April 2024 was zero (not corrected by our last data release).

Today's strong GDP data lowered the UK's interest rate cut expectations by 3-4 basis points, but market pricing still shows that this year's rate cut is slightly lower than 47 basis points. The September 19th meeting was highly anticipated and is expected to cut interest rates by 25 basis points for the first time.

Dutch International Group economist Smith wrote in a report that despite signs of sustained economic recovery in the UK, the Bank of England may be inclined to cut interest rates. Unless these inflation data are unexpected, we believe that the central bank tends to start cutting interest rates, and we expect the Bank of England to cut interest rates a total of three times this year.

After the data was released, the pound/dollar hit a several week high of 1.2668 and is currently eyeing the high of 1.2896 in early March.

The euro/pound continues its recent downward trend and will test the low of 0.8397 on June 14th. If it falls below this level, the euro/pound will return to the level of August 2022, making 0.8340 fragile.

According to data from IG Retail trader, 69.80% of traders are net long, with a ratio of 2.31 long to 1 short. The number of net long traders increased by 8.11% compared to yesterday and 11.58% compared to last week, while the number of net short traders decreased by 12.50% compared to yesterday and 9.26% compared to last week.

We usually hold opposite views to cater to market sentiment, and the fact that traders are net long suggests that the euro/pound may continue to decline. Traders have further increased their net long positions compared to yesterday and last week, and the current sentiment and recent changes have made our bias towards reverse trading of EUR/GBP even stronger.