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The Pound to Dollar exchange rate can extend higher in the short-term according to a new analysis released following the release of UK GDP data that showed a rebound in activity during August.

Payments firm Convera - formerly Western Union Business - says the Pound can extend higher in the short-term as it corrects from a near-8% fall that has dominated price action since August.

One major caveat, however, is the release of U.S. inflation data later on Thursday.

"Assuming we don’t see a strong US inflation report today, we see room for further upside for GBP/USD in the short term to $1.2450," says George Vessey, Lead FX Strategist at Convera.

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Pound-Dollar has risen for six days in succession now as it corrects from oversold conditions and is seen at 1.23 at the time of writing, with Pound Sterling having shown a non-commital response to GDP figures released earlier in the day.

"Sterling has opened the new session mixed across the board after data showed the UK economy grew in line with expectations in August but shrank more than initially thought in July. Barring any major labour market or inflation data surprises next week, we think the Bank will be content with keeping rates on hold again in November. Markets are pricing just a 20% chance of a hike," says Vessey.

The ONS reported UK GDP expanded 0.2% in August, which was in line with analyst expectations and a solid rebound on July's downwardly revised -0.6%. However, June's strong showing was given a further upgrade of 0.20 basis points.

The Pound came under pressure through much of September amidst a recalibration in market expectations for the outlook of UK interest rates.

"We feel the pound’s 8% fall against the US dollar from July to September was a fair reflection of the impact of a major adjustment needed in interest rate pricing. Peak BoE rates of 6.5%, when sterling’s was at its 2023 peak of $1.31, are now almost 100 basis points lower," says Vessey.

Economists we follow say the UK is set to avoid recession with a potential contraction in the third quarter most likely being compensated by steady growth into year-end.

"Prices now are rising substantially less quickly than wages, and households’ disposable incomes will be squeezed only gently by higher interest rates—at least in aggregate—because the value of their bank deposits now is only slightly smaller than the value of their debt," says Samuel Tombs, Chief UK Economist at Pantheon Macroeconomics.

"Accordingly, households' real disposable income looks set to rise over coming quarters, albeit sluggishly. Meanwhile, confidence among both households and businesses has recovered materially over the last six months," he adds.

Convera sees further upside for Pound-Dollar in the short term to $1.2450, around where the 100-week and 200-day moving averages currently reside.

"Conversely, we see limited scope for more upside in GBP/EUR, with €1.17 likely to be a major resistance barrier," says Vessey.