Pound Shrugs Off Solid U.K. GDP

UK GBP stronger than expected

The week is wrapping up with a data dump out of the UK on Friday. The highlights were the quarterly and monthly reports. Although both releases were stronger than expected, it wasn’t enough to bolster the pound, which is in negative territory on Friday. The COVID pandemic has resulted in sharp, double-digit swings in GDP.

The economy went into a tailspin in Q2 (-20.2%), but then bounced back in Q3 (+15.5%). As expected, the first quarter of 2021 showed the economy levelling off. However, the read of +1.0% was slightly better than the street consensus of +0.5%. Monthly GDP recovered from a dreadful reading of -2.6% in November, posting a solid gain of 1.2%, edging above the estimate of 1.0%.

Considering that the UK is under lockdown, the fact that the GDP releases were slightly stronger than expected is good news. Despite these respectable numbers, investors didn’t show the pound any love on Friday. This could be due to the headlines that the UK economy contracted 9.9% in 2020, its worst performance on record. Still, the economic picture over the next few months is one of cautious optimism.

With the vaccine rollout gathering steam, this should lend a boost to the economy moving forward in 2021. The ING Group) is projecting a strong rebound for the UK, to the tune of 5% in the second quarter.

On the manufacturing front, the news was not as positive. for December slowed to 0.3%, down from 0.7% beforehand. This was well off the estimate of 0.7%. The manufacturing sector continues to point to expansion, and this trend will need to continue if the UK economy is to continue to recover.

GBP/USD Technical

GBP/USD Daily Chart
  • There is weak resistance at 1.3808, a line which was tested earlier in the week. Above, there is resistance at the round figure 1.3879.
  • There is support at 1.3616. Below, we find support at 1.3495

Original Post

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