GBPUSD: Here’s Why Pound Sterling Rally is Set to Accelerate This week
The GBPUSD price is up by 0.30% as traders wait for the flash manufacturing and services PMI data from the UK and the upcoming government spending plan by Boris Johnson government. The pair is trading at 1.3326, which is the highest it has been since September 3.
Flash PMIs ahead
The biggest focus among GBPUSD traders will be about the November’s manufacturing and services PMI numbers. The data will provide more colour about the state of the UK economy as part of the country remains in a lockdown.
In a report expected at 09:30 GMT, analysts expect the numbers to show that the manufacturing PMI dropped to 52.0 in October. They also expect the data to show that the important services PMI number dropped below 50, for the first time since May this year.
This is mostly because England is still in a lockdown that will remain until December 2. Other parts of the United Kingdom are still having restrictions as the number of Covid cases remains high. Yesterday, the country revealed that more than 18,662 people had attracted the virus. While that is a high number, it is part of the downward trend that started on November, 12, when the number rose by 33,000.
Therefore, analysts believe that the overall PMIs eased in November as many businesses remained shut. However, they anticipate that business activity will rebound in December as the country starts administering the Covid vaccine.
Indeed, media reports suggest that Boris Johnson will lift lockdown for most businesses in the next few days. To do this, he will create a three-tiered system that will see non-essential retailers resume business operations.
Risk-on sentiment lifts British pound
The GBPUSD is also rising mostly because of the risk-on sentiment that has returned to the market. Ideally, investors are abandoning the US dollar because of the recent advances on the Covid vaccine.
Just last week, Pfizer and Moderna revealed that they would seek emergency authorisation to start mass manufacturing the vaccine.
At the same time, many countries, including the United States, United Kingdom, and Germany will start delivering the shots in December. Therefore, the GBPUSD is rising as investors abandon the safety of the US dollar.
Another risk that is abating is about the United States, where Donald Trump has continued to challenge Biden’s victory. However, the president has continued to face legal challenges in most states where he has filed. That means that, without a doubt, Joe Biden will become the next president on January 20th.
GBPUSD rises ahead of UK spending plans
Meanwhile, the GBP/USD is rising ahead of UK’s funding plans that will be released on Wednesday. According to the Financial Times, Rishi Sunak, the chancellor of the exchequer will increase the country’s spending on education and police and also increase taxes. School spending will increase by 4.6%. The healthcare sector will also receive additional financial resources as it tries to employ 20,000 new nurses.
The announcement by Sunak will come at a time when the UK budget deficit is on an upward trend. Indeed, it is expected to rise to a record £350 billion this year.
Other commitments expected on Wednesday include more funding for defence and the new green industrial revolution.
GBP/USD technical outlook – daily chart
Turning to the daily chart, we se that the GBPUSD price has been rising in the past few months. The price is above the ascending trendline that connects the lowest levels in May, June, September, and November.
It is also above the 25-day weighted moving average and just 1.10% below the 1st September high of 1.3474. Therefore, I believe that the pair will continue in this trend as bulls aim for the resistance at 1.3474.
4-hour GBPUSD analysis
On the four-hour chart, the same strength of the GBP/USD price emerges. The pair has managed to move above the important resistance at 1.3312, which was the highest level this month. It has also moved above the 78.6% Fibonacci retracement level, which is a signal that bulls remain in control.
Therefore, like in the daily chart, I predict that the pair will continue rising, with the next target being 1.3400. However, a move below the 61.8% retracement level at 1.3170 will invalidate this trend.