Pound higher despite GDP revision

UK GDP revised downwards

The UK economy grew 1.1% in the third quarter, revised downwards from the initial estimate of 1.3%. The expansion was led by robust consumer spending, which beat expectations with a gain of 2.7% as lockdowns were lifted in July.

Investors didn’t seem perturbed from the downward revision, as the British pound has moved higher today. Still, it’s doubtful that fourth-quarter growth will be as strong as Q3. The explosion in cases of the Omicron variant in December has prompted the government to implement plan B, which has dampened the economy, especially the hospitality sector.

There was some light in the pre-Christmas gloom after Prime Minister Boris Johnson announced that it would not introduce new restrictions before Christmas. Still, Johnson warned that there could be further measures after the holiday. This would likely mean limits on the number of people meeting in indoor venues.

With the holiday season comes illiquid markets, which means that market direction will be dictated by headlines, which could translate into volatility. The government announcement of no further restrictions before Christmas certainly removes some uncertainty for market participants, but if infection rates continue to soar in the UK, investors could get jittery and seek the safety of the US dollar at the expense of the pound.

The newest vaccines and pills in the fight against Covid make the headlines daily, but a report about a super-vaccine could shake up the markets if confirmed. According to the report, researchers at Walter Reed Army Institute of Research are testing a vaccine that would protect against all Covid variants. Such a discovery would clearly be a game-changer, and would likely restore risk appetite, which has fallen sharply as Omicron rages across Europe and the US.

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GBP/USD Technical Analysis

• GBP/USD has support at 1.3190 and 1.3116
• There is resistance at 1.3314 and 1.3364

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