- The British pound closed the week higher against the euro and the US dollar, supported by news that the UK economy rebounded in November.
- Technically, GBP/USD pair moved towards the resistance level of 1.2785 by the end of the week before closing the day's trading around 1.2750.
Data from the Office for National Statistics showed that the UK economy grew by 0.3% on a monthly basis in November, rebounding from -0.3% in October, beating the consensus forecast of 0.2%. However, there were also some negative surprises: the UK economy grew by 0.2% year-to-date in November, recovering from the downwardly revised reading of -0.1% in October. On a three-month rolling basis, the economy contracted by 0.2%, worse than expected at 0.1%.
At the same time, UK industrial production rebounded to 0.4% on a monthly basis in November from -1.2%, beating expectations of 0.3%. Also, Industrial production was expected to grow by 0.3% on a monthly basis, while the services PMI was also expected to grow by 0.2%.
Overall, the pound is the best-performing currency in 2024 so far as markets have moved to ease expectations of imminent interest rate cuts from the Bank of England. These latest economic figures will weigh on this theme. Commenting on the performance and influencing factors, Tim San Wong, analyst at Validus Risk Management, said: "Today's numbers are evidence that the UK economy is in better shape than expected. Clearly, while good news, they raise questions about markets pricing in 120 basis points of cuts from the Bank of England in 2024. Meanwhile, with core inflation still well above target at 5.1%, housing markets continuing to be strong, and economic data beating expectations, it is hard to imagine that the Bank of England will start a strong cutting cycle.
Despite November's results, the bigger picture is one of a UK economy that is holding steady and results above 0.3% are needed in December to avoid confirmation of a technical recession. Also, Analysts said, “This rise in November is sufficient to return the UK economy to stable growth during these two months, but it leaves a huge amount of pressure on the December numbers, as even a slight downward shift will lead the UK to enter a technical recession after that.”
Recently, December PMI figures pointed to a strong improvement in output, suggesting the country could avoid a technical recession. Indeed, Forex markets will continue to focus on short-term surveys, while this week's inflation figures will also be crucial.
GBPUSD Expectations and Analysis Today:
The expectations for the performance of the British Pound against the US Dollar “GBP/USD” indicate that the overall trend, as shown on the daily chart above, is still bullish. Technically, the stability around and above the resistance level of 1.2750 confirms this, and there might be an opportunity to test the psychological resistance at 1.3000. Therefore, if the currency pair moves higher, initially towards the resistance level of 1.2860. However, it is essential to consider that the recent gains in the GBP/USD are paving the way for technical indicators to reach strong overbought levels, so it's not surprising if there are profit-taking selloffs at any time.
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