GBP/USD, Weekly & H1
The Pound, while softer today, has moderately outperformed this week. Various analyst notes from both the currency and equity realms have been reporting long-term investor interest in UK assets, which have been left undervalued by the impact of both the long Brexit process and Covid lockdowns (the UK economy having underperformed G20 peers during lockdowns last year). Cazenove Capital estimated, for instance, that UK equities were trading as low as a 30% discount to global peers, a near 30-year low by this comparative metric to last year. Sectors that have been hard hit by Covid lockdowns include the energy and banking stocks, which are sectors that the UK market is rich in. A survey conducted by the Association of Investment Companies recently highlighted that some UK equity fund managers have been heralding Brexit as an inflection point for UK stocks. There are also expectations that pent up business investment is being unleashed, with Brexit uncertainty having finally cleared.
The Pound has also been underpinned by a favourable shift in yield differentials after BoE Governor Bailey and Deputy Governor Broadbent downplayed negative interest rates this week. The rapidly proceeding Covid vaccination program in the UK, which is leading the way globally and is on track to have nearly 25% of the population vaccinated including nearly all of the at-risk groups by mid February, is another sterling positive. The Covid vaccination rollout is enabling investors to look across the valley of prevailing lockdown realities, with UK nations last week going into a ‘tier 5’ lockdown, the most restrictive level since the full ‘mother lockdown’ of spring last year.
This morning, UK GDP for November fell by -2.6%, better than expected but still a painful record. A double-dip recession by some¹ is now predicted as the UK enters the full extent of life outside the single market.
Technically GBPUSD remains bid on the Weekly chart, with the 161.8 Fibonacci extension from the September 2020 low sitting around 1.4000. Today, yesterday’s rejection of 1.3700 continues as the Dollar gains some support and Cable trades under 1.3650. S1 sits at 1.3630 and S2 below 1.3600 at 1.3575. First resistance is today’s Pivot Point at 1.3675, with R1 beyond 1.3700 at 1.3720.
Disclaimer: Nothing in this communication contains, or should be considered as containing, an investment advice or an investment recommendation or a solicitation for the purpose of purchase or sale of any financial instrument.
Recommended Content
Editors’ Picks
EUR/USD clings to daily gains above 1.0650
EUR/USD gained traction and turned positive on the day above 1.0650. The improvement seen in risk mood following the earlier flight to safety weighs on the US Dollar ahead of the weekend and helps the pair push higher.
GBP/USD recovers toward 1.2450 after UK Retail Sales data
GBP/USD reversed its direction and advanced to the 1.2450 area after touching a fresh multi-month low below 1.2400 in the Asian session. The positive shift seen in risk mood on easing fears over a deepening Iran-Israel conflict supports the pair.
Gold holds steady at around $2,380 following earlier spike
Gold stabilized near $2,380 after spiking above $2,400 with the immediate reaction to reports of Israel striking Iran. Meanwhile, the pullback seen in the US Treasury bond yields helps XAU/USD hold its ground.
Bitcoin Weekly Forecast: BTC post-halving rally could be partially priced in Premium
Bitcoin price shows no signs of directional bias while it holds above $60,000. The fourth BTC halving is partially priced in, according to Deutsche Bank’s research.
Week ahead – US GDP and BoJ decision on top of next week’s agenda
US GDP, core PCE and PMIs the next tests for the Dollar. Investors await BoJ for guidance about next rate hike. EU and UK PMIs, as well as Australian CPIs also on tap.