Economic surprise indices favor GBP/USD recovery

While the United Kingdom has been surprising the markets, economist and the doomsayers with continued resilience after the referendum in June, on the other side of the world the United States’ economic performance has taken a slide compared to the prevalence expectations. Citi’s UK economic surprise index has reached the highest level in almost three years but the economic surprise index in the United States has taken a downturn since July.

Though, two central banks are on a different path of monetary policy. The Bank of England (BoE) has recently unveiled a fresh package of stimulus measures, whereas the Federal Reserve is looking to hike interest rates. With economic surprises diverging, the market expectations of the monetary policy divergence are likely to slide and provide support to the GBP/USD exchange rate and even lead to a recovery.

The pound is currently trading at 1.323 against the dollar, a break above 1.34 are could push the pair towards 1.38