The UK economy grew in August instead of the expected contraction.
GDP increased by 0.1% month-on-month, while the market had forecast a decline of 0.1%.
In annual terms, the economy grew by 2.1% against expectations of 1.7%.
Why the data came in stronger than expected
A month earlier, UK GDP had grown by 0.4%.
For August, the market had already priced in a slight contraction of the economy, so the actual growth of 0.1% came as a positive surprise.
It was precisely the divergence between the forecast decline and the actual growth that supported the pound after the release.
Industry supported the economy
One of the main drivers of growth was industry.
Industrial production increased by 0.8% month-on-month.
Manufacturing showed even stronger dynamics - +1.2%.
This helped offset the weakness in other components of the economy.
How the pound reacted
After the statistics were published, GBP/USD gained about 0.37% and rose to 1.3242.
The day before, the pair had bounced from 1.3135, its lowest level since the start of the year.
The nearest important resistance remains the round level of 1.3300.
Technical resistance on the four-hour chart is also located in this area.
What is happening with the Bank of England
Expectations regarding the interest rate remain an additional factor.
Bank of England Chief Economist Huw Pill questioned whether the market is correctly assessing the probability of four rate hikes over the next year.
This somewhat limits the support for the pound from monetary policy.
Strong economic data, however, reduces the need for rapid easing of conditions.
What is happening with the dollar
The American currency is simultaneously retreating from recent highs.
The DXY dollar index declined following US government bond yields.
The weakening of the dollar additionally helped GBP/USD recover from its yearly low.
What's next
The next important event for the pair will be the release of the US producer price index.
A strong PPI could again support expectations of a tighter Fed policy and strengthen the dollar.
Weak data, on the contrary, could help GBP/USD continue its recovery and approach 1.3300.
For the pound, today's GDP data means that the British economy still looks more resilient than the market expected.
Were you long the pound when the statistics came out?
UK macroeconomic releases can cause sharp moves in GBP/USD within the first minutes after publication. For a prop trader, the rules of the specific program are especially important here. Some prop firms allow trading during the publication of statistics, while others have restrictions on entering a few minutes before and after the release. Limits on position size, overnight holding of trades, and daily drawdown calculation may also differ.