The ideas for the weakening of the dollar did not work, the US currency index ended the week above 96.00. Buyers are preparing for the Fed's verdict. The technical picture favors the further growth of the greenback and there is still room for maneuver under the 98.00 mark.
One of the weakest currencies this week was the British pound. The GBP/USD pair fell sharply after the introduction of new quarantine measures in the UK, which, among other things, provide for the transfer of employees to remote work and the provision of vaccination documents when visiting public places.
Weak macro statistics for Britain also did not add a positive to the pound. The deterioration of the epidemic situation will certainly entail a decrease in other indicators, for example, consumer and business activity. In this case, the pound may fall to even lower levels. This is not to mention the consequences of Brexit, which from time to time make themselves felt. Sterling will be vulnerable as long as tensions remain between London and Brussels. This is very noticeable in the EUR/GBP pair, which, by the way, has grown noticeably over the past three weeks.
Meanwhile, since the beginning of the year, the quote has been trading in a long-term downward trend. If the downward movement resumes, selling this currency pair from current levels will be a good idea.
Today, the economic calendar includes data on UK GDP for October, business activity in the service sector, and the volume of production in the manufacturing sector of the country. Industry plays a big role in the final indicator of GDP, so a high value will be a positive factor for the pound, and vice versa. Friday's weaker data will cause even more pressure on the pound, including in the EUR/GBP pair.
The volume of industrial production in October unexpectedly decreased by 0.6%, while analysts announced an increase of 0.1% on a monthly basis. The annual value also went against the forecast. Production expanded by only 1.4%, an increase of 2.2% was expected.
The UK economy also grew weaker than expected. The value was 0.1%, which is a sharp slowdown compared to the monthly growth of 0.6% in September. Reuters economists had predicted monthly growth of 0.4%. There is also a noticeable drawdown in annual terms.
"We have always recognized that there may be obstacles on our way to recovery," Finance Minister Rishi Sunak commented on the situation.
Indicators of a sluggish economic recovery have become another indication that the Bank of England will not tighten policy at its meeting next week. The sentiment of the pound traders fell, which naturally affected the positioning of the British currency.
Based on the failed GDP data, market players made the following conclusion: the rapidly growing inflation rate and Omicron may force the world's fifth largest economy to start shrinking again.
Meanwhile, getting the economy out of recession is much more difficult than suppressing rising inflation. The English regulator has already begun to realize this. Perhaps next week investors will hear sharply dovish comments from the Central Bank.
Key banking analysts such as Barclays and JPMorgan have gradually begun to push back the forecast of the first rate hike by the Bank of England. Now they have been joined by colleagues from Goldman Sachs. Alternatively, a 15 basis point increase could take place at the February meeting. However, this forecast is more like an excuse and looks unrealistic.
Even the most ardent "hawk" in the committee, Michael Saunders, refuses to make predictions and assumptions. First of all, you need to wait for the clarification of the picture on Omicron.
However, if the market considers that the increase is still real in February, then the pound is unlikely to be under serious selling pressure. A lot will depend on the rhetoric of the Bank of England. If doubts are expressed, including regarding February, the pound may depreciate more. The target for the GBP/USD pair will be the 1.3000 mark.
