Pound drifting, US markets on holiday

The British pound is flat as we start the new trading week. The currency enjoyed another positive week and GBP/USD has now risen for four consecutive weeks, as the US dollar continues to struggle.

There are two factors behind which are driving the pound higher. First, investor risk appetite remains strong, which has led to a rotation out of US dollars and into the major currencies. Investors remain in risk-on mode despite soft US employment and retail sales numbers and a more hawkish Federal Reserve. Second, UK data has been solid, as the recovery continues to gain steam. UK GDP for November jumped 0.9%, much stronger than expected and pushing GDP above the pre-Covid level for the first time. On Tuesday, the UK releases key employment numbers, and I would expect some movement from GBP/USD in the European session.

Johnson leadership in crisis

Prime Minister Boris Johnson is under intense pressure to resign, over all things, reports that he and his staff took part in numerous parties when lockdowns and Covid restrictions were in effect. Johnson has admitted that he attended a party with alcohol in May 2020, during the first lockdown, but claimed it was a work event. This has been met with ridicule and some of Johnson’s fellow Conservative lawmakers have joined in the growing calls for him to resign. An official investigation into the matter, which will be released shortly, will likely determine whether Johnson keeps his job. The latest political crisis has not made a dent in the pound’s upswing, but the currency could come under pressure if this political storm topples Johnson and leads to a period of political instability in the UK.

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GBP/USD Technical Analysis

• There are support levels at 1.3560 and 1.3438
• GBP/USD faces resistance at 1.3776. This is followed by resistance at 1.3870

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