Markets brace for plunge in UK GDP

The British pound has reversed directions on Thursday and posted slight gains. Currently, GBP/USD is trading at 1.3684, up 0.33% on the day. Friday will be busy, as the UK releases GDP and Manufacturing Production.

It has been a light data calendar for UK events. With the markets hungry for some news, perhaps it was not surprising that the pound showed some volatility in response to reports that the Bank of England was considering implementing negative interest rates early in 2021. BoE voting member Tenreyrro stated on Monday that negative rates could provide significant stimulus to the economy and said that other central banks had shown success with negative rates. What caught the market’s attention, however, was Tenreyro’s assertion that the BoE was studying the feasibility of negative interest rates. The pound responded by dropping 0.40% on Monday, as investors were unhappy with the possibility of a negative return on their pound holdings. This forced BoE Governor Andrew Bailey to engage in damage control on Tuesday, where he basically dismissed Tenreyro’s statement, saying that there were a lot of issues with negative rates. The pound rebounded in spectacular style, climbing 1.1 per cent.

The markets will be able to focus on some hard numbers on Friday, with the release of monthly GDP. The report is expected to show a sharp decline of 4.6%, which would mark the first decline in growth since April, when the economy plunged by a whopping 24.3%, when the economy was under lockdown due to Covid-19. A reading within expectations could sour investors and send the pound downwards. We’ll also get a look at Manufacturing Production, which is expected in at 1.0%, down from 1.7%.

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GBP/USD Technical

• GBP/USD has broken above resistance at 1.3666. Above, there is resistance at 1.3770
• There is support at 1.3495. Below, there is support at 1.3428
• The pair continues to flirt with the 10-day MA line. If the pair closes above the line, it would be a technical bullish signal

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