- GBP / USD is consolidating around 1.3400, just above the yearly lows touched earlier in the session.
- The worse-than-expected UK GDP data did little to affect the British pound amid weak trading conditions on Thursday due to Veterans Day.
Having briefly dropped to new lows for the year at 1.3365 earlier in the session, the GBP/USD it is currently consolidating on both sides of the 1.3400 level. Trading conditions are likely to be subdued on Thursday as the US markets are partially closed in observance of Veterans Day (bond markets are closed, but futures and equity markets are open).
That will give traders some breathing space after a rough session on Wednesday in which the USD rose across the board following a much hotter-than-expected consumer price inflation report for the month of October. That report, and the subsequent rise in US bond yields / aggressive price readjustment of USD short-term interest rate markets, caused GBP / USD to soar from above 1.3500 to current levels further. 100 pips lower.
UK economic data released Thursday morning did little to help the British pound’s cause. The preliminary estimate of third quarter GDP growth was slightly weaker than expected at 1.3% QoQ, a sharp slowdown from the 5.5% QoQ growth rate in the second quarter. Manufacturing and industrial production data for September were also soft.
Now that GBP / USD has broken below key support in the form of year-to-date lows in the 1.3415-25 region, bearish technical indicators will mark their next target levels. One of those levels could be the 38.2% Fibonacci retracement from the 2021 highs (around 1.4250) to the 2020 lows (around 1.1420), which is near 1.3170.
Brexit
There has been more news on Brexit on Thursday, as talks continue between officials from the UK, the EU and France on the Northern Ireland issues and access to fishing. British Prime Minister Boris Johnson will meet French President Emmanuel Macron on Friday, British press reported Thursday, likely to discuss the latter issue. Meanwhile, the British press also reported on Thursday that the EU is ready to make an improved offer to the UK regarding border controls on goods crossing the Northern Ireland border. It remains to be seen whether this will be enough to prevent the UK from activating Article 16 and increasing trade tensions with the EU.
CIBC believes that a “slowing macroeconomic environment and relatively contained inflation expectations point towards a less aggressive rate cycle” from the Bank of England. The bank adds that “the risk of further UK-EU trade frictions also points to an increase in GBP headwinds in early 2022”, before concluding that “as a consequence, we have revised to our outlook for the British pound is lowered and we forecast GBP / USD to be 1.33 by the end of the year. “
Technical levels
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