As I mentioned earlier in the week, investors were waiting for this mornings third quarter reading to see how the UK economy has performed in the first three months after the referendum result.
Many had expected the UK economy to crumble on the back of the Brexit vote, but so far data suggests things are still moving forwards. This mornings GDP reading had been predicted to come at 0.3%, however figures published by the Office for National Statistics at 0930 (BST) this morning showed the economy grew by 0.5%.
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The news gave the pound an immediate boost with the GBP/USD cross rising from $1.2203 to $1.2264 as the graph below shows. The move this morning also means that GBP/USD is now at it highest level since the 20th October.
GBP/USD graph
Will the pound climb any higher?
It is still to early to say, as there is still so much uncertainty surrounding the UK and exit negotiations. Under normal circumstances a positive GDP reading would usually result in a bigger gain for the country's currency, however, the pound is still being weighed down by talk of a hard Brexit and this is unlikely to change any time soon.
After the spike this morning I wouldn't be surprised if we saw the GBP/USD cross settle back around $1.22 within the next couple of hours. In the short term I still believe GBP/USD could lose more ground, especially if the U.S. Federal Reserve raise interest rates before the end of year. A rate hike by the Fed could easily see the pound lose out and could force the currency pair below $1.20.
In the long term I am sure GBP/USD will recover but I cannot be certain of the time frame. Once the UK is standing on its own two feet and the dust settles from years of Brexit negotiations then we could see the pound back over $1.50 against the dollar.
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