Very timidly, the GBP/USD moved upwards, with gains that did not exceed the resistance level of 1.2248, its highest level in a month.
- The recovery gains were in light of the decline of the US dollar against the rest of the other major currencies, following the announcement of the latest US inflation figures.
- Last week's trading closed around the level of 1.2227.
- Sterling's gains will face difficulties represented by existing expectations for the future of the British economy's recovery in the new year.
- So far, the US Federal Reserve is still more hawkish than the Bank of England.
The British economy achieved a second month of growth for the fourth quarter in November, suggesting that a recession had been avoided while calling on economists to reconsider their assumptions and projections for the coming year.
According to the Advertiser, UK economic output rose by 0.1% in November after rising by 0.5% in October, which makes an economic contraction in the fourth quarter unlikely and comes despite the average household energy bill rising by more than 25% to £2,500 from the end of September. . The growth in November was driven by 0.2% growth in the dependent services sector driven by a range of industries including those that deal directly with consumers, although the contraction deepened in the third quarter in some other economic areas.
This was particularly the case in the industrial sectors where headwinds could grow further as subsidies for higher energy costs are reduced in the future. The Office for National Statistics says: “Monthly GDP is now estimated to be 0.3% below pre-COVID-19 levels (February 2020). “Manufacturing was the main driver of negative production growth in November 2022, partially offset by a positive contribution from mining and quarrying,” he added, referring to industrial production.
But while the headwinds remain, the consensus in financial markets was that GDP would decline by -0.3% for the month of November, putting the British economy on course for a second decline and entering recession during the last quarter.
After the economic figures were announced, Ebrahim Qadri, an economist at Goldman Sachs, said, “With today's stronger-than-expected data in mind, we are revising our Q4 tracking estimate to 0.0% qoq (from -0.2% qoq). ex) and our Q1 growth forecast to -0.3% qoq (from -0.4% qoq previously).” This raises our 2023 annual growth forecast to -0.5% yoy (from -0.7% yoy previously), above forecasts (-0.9% yoy) and BoE forecasts (-1½% yoy).
For his part, the UK’s chief economist at Pantheon Macroeconomics said, “Looking ahead, we still believe that GDP will decline significantly in the first and second quarters. The government has temporarily stopped paying cost-of-living grants to low-income households in the first quarter, and will then significantly reduce energy subsidies in the second quarter.” At the same time, the rapid interest rate increases by the MPC have significantly increased the cost of external financing for companies, which mainly have floating rate loans. Increasingly, surveys show that companies are planning to respond to this financial shock by reducing investment and pressing for job cuts and “in the meantime, about 10% of households will refinance their mortgages this year, putting severe pressure on their disposable income.”
GBP/USD Forecast:
Looking at the performance on the daily timeframe chart, the GBP/USD is moving in an upward retracement path, but still lacks strong bullish momentum to confirm control. This may happen if the currency pair moves towards the resistance levels 1.2315 and 1.2420, respectively.
On the other hand, and for the same period of time, the bullish hopes will evaporate if the currency pair returns towards the support level 1.2085 and below it. In the absence of important and influential economic releases in addition to the American holiday, the currency pair may move based on the sentiment of investors and markets.
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