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Saturday, February 27, 2021

GBP/USD pulls back ahead of final UK Q3 GDP data

  • The GBP/USD pair pulled back as traders wait for the final reading of UK Q3 GDP data.
  • Analysts expect the data to confirm that the UK economy recorded a sharp contraction in Q3.
  • The pair is also reacting to the Internal Market Bill that is heading to House of Lords

The GBP/USD is down for the first time in five days mostly because of a stronger US dollar. The pair is also reacting to the ongoing developments on Brexit and the internal market bill. It is trading at 1.2840, which is below this week’s high of 1.2934.

GBP/USD pulls back ahead of GDP data

Internal market bill

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In August, Boris Johnson unveiled the Internal Market Bill that would break international law as Brexit talks went on. The bill passed the first stage of legislation shortly after. And yesterday, it cleared the final stage in the House of Commons with a 84-vote margin. 340 members voted for it while 256 opposed it.

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The bill is now expected to move to the House of Lords, where most analysts believe that it will fail. That is because Tories don’t have a majority in this house.

According to Bloomberg, Boris Johnson’s officials expect that the Lords will either re-write or remove most of the parts of the bill. As a result, it will remove a key bargaining chip for the Prime Minister as talks proceed in Brussels.

While key issues on trade between the European Union and the UK remain, analysts are optimistic that the two sides will make some progress on Brexit this week. If they do, they will enter a period of more negotiations to iron-out key issues before the unofficial deadline of October 15.

UK GDP data ahead

Today, the GBP/USD will likely react mildly to the final reading of the country’s second-quarter GDP. That is because the readings will be almost similar to what the Office of National Statistics (ONS) released in August. The number showed that the UK economy contracted by 20.4% in the quarter after weakening by 2.2% in the first quarter. Subsequently, this led to an annualised drop of 21.7%.

The pair will also react to the house price index (HPI) data. Analysts polled by Reuters expect the data will show that the prices rose by 0.5% in September after rising by 2.0% in the previous month. That will bring the prices higher by 4.5% on an annualised basis.

Just yesterday, data from the Bank of England showed that the mortgage industry continued doing well in August. The data showed that mortgage approvals by a record 84.70k in August. That was substantially higher than the 73k that analysts were expecting. As a result, mortgage lending rose to more than £3.1 billion.

GBP/USD technical outlook

GBP/USD technical chart

The daily chart shows that the GBP/USD has risen for the past four consecutive days. That has seen it rise from last week’s low of 1.2647 to Monday’s high of 1.2935. The price is between 61.8% and 78.6% Fibonacci retracement levels. It is also slightly below the 25-day exponential moving average. Therefore, even with the recent gains, I suspect that the pair will remain in a downward trend unless it moves above this moving average, which is acting as a dynamic resistance.

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