UK Economy Surpasses Pre-Pandemic Levels: Nov GDP + 0.9%
UK GDP, GBP/USD Analysis:
- UK economy rose 0.9% in November, taking the economy past pre-pandemic levels
- Omicron and ‘Plan B’ could dampen the mood with lower expected GDP in Dec & Jan
- Key GBP/USD technical levels analyzed alongside IG Client Sentiment data
November GDP Surpasses Expectations
The British economy grew by 0.9% in November propelling the overall size of the economy to 0.7% above the pre-pandemic level. In fact, the UK economy was 8% larger than November 2020.
Source: DailyFX economic calendar
The positive data further supports market expectations of another Bank of England (BoE) rate hike in February. Currently rate markets have priced in a 75% chance of a hike from 0.25% to 0.5% when the group is due to meet on the 3rd of February. However, with the emergence of the Omicron variant and subsequent restrictions imposed via ‘Plan B’, lower levels of economic activity may surface for December and January which could result in a sudden repricing of the expected rate hike – similar to what we saw after the BoE’s decision not to hike rates in November last year.
Key Technical levels (GBP/USD)
The Pound Sterling continues its impressive bull run after breaking above the trendline support which stems from the 2021 high. Tuesday this week was when we saw the pair trade above the trendline but Wednesday provided the momentum needed to confirm the renewed bullish intent, as the post CPI dollar sell-off boosted GBP/USD.
The dollar decline, positive GDP figures and increasing talk of another rate hike next month has helped support Sterling at current levels. A bullish continuation highlights the 1.3780 and 1.3835 levels of resistance.
However, risks to the downside have emerged as the pair continues to trade in overbought territory (RSI) and the dollar - via proxy in the US dollar basket (DXY) – attempts to stop the recent spate of selling as it trades flat in the early hours of the London session. Nearest support remains the 1.3675 level with trendline support the next relevant level to watch before 1.3515 comes into focus.
GBP/USD Daily Chart
Chart prepared by Richard Snow, IG
Client Sentiment Favors Bullish Continuation
Retail trader data shows 38.09% of traders are net-long with the ratio of traders short to long at 1.63 to 1.
- We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests GBP/USD prices may continue to rise.
- The number of traders net-long is 0.62% higher than yesterday and 15.53% lower from last week, while the number of traders net-short is 1.42% higher than yesterday and 33.53% higher from last week.
- 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.
--- Written by Richard Snow for DailyFX.com
Contact and follow Richard on Twitter: @RichardSnowFX
DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.