Sterling eases, dollar well supported

UK economy bounces back

UK GDP fell a little short of expectations this morning, rebounding 15.5% following the 19.8% contraction in Q2, leaving the economy 8.6% smaller than it was in January. On the face of it, this may still look encouraging, 8.6% is a lot but that’s a really impressive bounceback. This is an encouraging signal that the economic recovery is gaining traction.

But then, the signs are already there that the economy started to struggle again in October and November and now we’re back in national lockdown. It’s going to continue to be a stuttered recovery until a vaccine is widely available and the next couple of months are going to be extremely challenging in managing the virus. And at a critical time of year for so many businesses.

The pound is holding up quite well despite coming under a little pressure in the run-up to and after the data. The numbers, while a little disappointing, aren’t entirely shocking and with Brexit talks seemingly ticking along nicely, there’s still cause for optimism. The currency has made strong gains this last couple of months and has its sights set on 1.34 against the dollar. It’s seeing some support around 1.3150-1.32 at the moment, with 1.31 being the next area of support below.

The greenback is generally doing quite well since the vaccine announcement. Its usual role as a safe haven this year cast aside as US yields rose in the aftermath of the announcement, delivering decent gains for the dollar. It will be interesting to see if the dollar starts to perform strongly once again as we move into the vaccine phase of the pandemic. The general view has been bearish for the dollar the next year or two but the reaction this week may have traders asking a few questions.

For a look at all of today’s economic events, check out our economic calendar.

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Craig Erlam

Craig Erlam

Senior Market Analyst, UK & EMEA at OANDA
Based in London, Craig Erlam joined OANDA in 2015 as a market analyst. With many years of experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while producing macroeconomic commentary. His views have been published in the Financial Times, Reuters, The Telegraph and the International Business Times, and he also appears as a regular guest commentator on the BBC, Bloomberg TV, FOX Business and SKY News. Craig holds a full membership to the Society of Technical Analysts and is recognised as a Certified Financial Technician by the International Federation of Technical Analysts.
Craig Erlam
Craig Erlam

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