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. www.marketpulse.com/economic-events/

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