After a poor week, Pound Sterling regained traction on Friday, with a three-day slide finishing with a hammer candle that provided an initial optimistic signal. To close the trading week, the UK provided data, and the items that investors were most interested in were disappointing. GDP growth dropped to 0.8 percent month over month in May, significantly behind the revised April reading of 2.0 percent and the average estimate of 1.0 percent.
Even though the recovery is picking up momentum and PMI numbers show robust growth across the board, GDP is still approximately 3% below pre-Covid levels (February 2020). Despite this, the economy continues to grow, with the May data marking the fourth consecutive month of growth.
We can expect pent-up demand to be liberated and economic development to be boosted in H2 of 2021, with the government set to eliminate all Covid limitations in 10 days. However, health officials are warning that removing all health restrictions is premature, especially given the rise in cases of the Covid delta version in the UK. If the decision to reopen backfires and the number of Covid cases rises, the economy could be shut down in areas.
Pound Sterling Is Expected To Keep on Track
The Pound Sterling (GBP/USD) encounters additional supply in the European close on Friday, giving up over 50 pips to return past the 1.3800 level. The cable, on the other hand, made a spectacular comeback from multi-day lows of 1.3741, however, it fell short of the 1.3900 barriers before the sellers regained control.
The 115-pip rally in the cable followed a sudden shift in risk sentiment, as global stocks surged, reducing the appeal of the US dollar as a safe haven. Following Thursday’s sell-off across the board, investors appear to have shrugged aside the latest fears about the Delta covid variant and its influence on the global economic recovery.
Meanwhile, increased Brexit concerns, rising covid cases in the UK, and disappointing GDP data have not influenced the pound, as risk-on flows continue to be the key market driver.
