GBP/USD, EUR/GBP flows: GDP as expected; sterling remains lively on the squeeze

UK GDP comes in broadly as expected at 0.1% in May and 1.3%y/y, bolstered by services (-0.3%) with a 0.1% decline in industrial production and sharper -0.8% drop for construction. The ONS note that the 3m/3m pace has been robust at 0.7% (from an upward revised 0.8% in April), but that the last 2 months show a weaker picture.  The latter does suggest some impact from energy, uncertainty (and some tightening through mortgage rates) from geopolitics coming through and how much and how quickly this is seen will be a key factor for the BoE outlook later in the year.

Largely as expected data leaves sterling unmoved and rather more focused on a combination of geopolitics, local politics, and mainly the last couple of weeks the impact of positioning/ technicals. GBP has been under upward squeeze pressure thanks to its very short spec base, and resulting downside range break on the cross.

Yesterday saw the 0.8508/00 prior support give way as well as 0.8475/70 (Jan25 high and 61% back) tested through to 0.8450 round figure before some backfilling to the retracement level . Cable at 1.3550 congestion. Sterling short squeeze now a little overbought intraday but still looking firm, 1.36-1.3650 is the post April range tops and that offers an obvious consolidation area for more two-way flow, as some profit-taking on the range rally comes through