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British Pound Latest - Sterling Underpinned by GDP Data, US Announce USD1.9 Trillion Stimulus Package

British Pound Latest - Sterling Underpinned by GDP Data, US Announce USD1.9 Trillion Stimulus Package

Nick Cawley, Strategist

Sterling (GBP/USD) Price, Analysis and Chart:

  • UK GDP not as bad as feared.
  • US President-elect Joe Biden announces a USD1.9 trillion stimulus package.

The UK economy performed better-than-expected, data released showed. The latest GDP data was stronger than market forecasts, while last month’s prints were also revised higher, despite the Covid-19 lockdowns. According to the Office for National Statistics, corona restrictions impacted the drinks manufacturing and services industries, but falls in output were not as large as those seen in March and April, ‘as businesses found ways to adapt to the restrictions’.

British Pound Latest - Sterling Underpinned by GDP Data, US Announce USD1.9 Trillion Stimulus Package

The latest Covid-19 data continues to show the UK ravaged by the virus, although the vaccination program is well underway with over 2.9 million people having had the first shot of the vaccine. The government has set a goal of vaccinating 15 million people by mid-February, with the program expected to ramp in the very near future. The government has already said that these numbers need to be made before they discuss measures to take the UK out of lockdown.

GBP/USD is currently trading around 1.3650, underpinned by the better-than-expected data, while the USD1.9 trillion US stimulus package announced last night, will weigh on the greenback in the foreseeable future. The package includes direct payments of $1,400 to all Americans along with USD440 billion for small businesses and USD415 billion to fight the Covid-19 virus. The Biden administration also wants to administer 100 million vaccine shots in the next 100 days.

Russell 2000 Gains, S&P 500 Wobbles Following President-Elect Biden’s Stimulus Details

Looking at the daily chart, the positive trend in Sterling remains in place and fresh multi-month highs are within touching distance. All three simple moving averages are supportive of higher prices, while the CCI no longer shows the pair being overbought. The IG sentiment indicator – see below – is also giving a positive reading.

GBP/USD Daily Price Chart (February 2020 – January 15, 2021)

British Pound Latest - Sterling Underpinned by GDP Data, US Announce USD1.9 Trillion Stimulus Package

IG retail client data show 33.68% of traders are net-long with the ratio of traders short to long at 1.97 to 1.The number of traders net-long is 13.04% lower than yesterday and 29.00% lower from last week, while the number of traders net-short is 9.91% higher than yesterday and 39.87% higher from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests GBP/USD prices may continue to rise.Traders are further net-short than yesterday and last week, and the combination of current sentiment and recent changes gives us a stronger GBP/USD-bullish contrarian trading bias.

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What is your view on Sterling – bullish or bearish?? You can let us know via the form at the end of this piece or you can contact the author via Twitter @nickcawley1.

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.