They claim the Fed indicates the BoE acts. This week, the “Old Lady” raised the cost of borrowing first among significant banks, boosting GBP/USD and dispelling Omicron’s anxieties.
The pandemic, final UK GDP, most US data, and anticipation about the monetary authorities’ future steps will all influence the Pound during Christmas.
The BOE Shocks With A Rate Increase
In the past, when former BOE Governor Carney was accused of deceiving markets about fiscal policy, he was called an “undependable boyfriend.” Andrew Bailey looks to have easily surpassed him.
The BOE startled investors by not increasing rates in November. It happened suddenly, with no press conference.
In subsequent media appearances, Bailey characterized the move as a reaction to high inflation (5.1% in November) and growing salaries. The near-unanimous 8:1 vote boosted sterling more.
The BOE’s messaging and market effect surpassed the Feds. The most significant and most potent monetary authority led markets to double the rate of tapering – from $15 to $30 billion. A less economic stimulus is expected in March.
On the one hand, the Washington-based think tank’s forecasts indicate three increases in 2022. However, Fed Chair Powell was reluctant to raise borrowing prices early, allowing for a financial statement reduction. That slowed the Dollar’s rise.
Other data benefited the Pound; UK retail sales rose 1.4% in November, while US sales grew by only 0.3%, less than expected.
The quick expansion of Omicron in the UK and other markets have had mixed results. Despite the strain’s high contagiousness, there’s still hope for a milder variant and effective booster doses.
But the mechanics of dealing with the infection wounded Sterling more. The most significant Conservative Party revolt in Prime Minister Boris Johnson’s tenure came with new limits, and other scandals harmed his authority.
BOE Speculations, Omicron, And GDP
On Thursday, 88,000 COVID instances were registered in Britain, beating the previous record set on Wednesday. Unlike the PM, senior health authorities, including Chris Witty, warned of hospital overcrowding in the run-up to Christmas.
Reports of reduced numbers of people out on the streets might intensify, weighing on sterling. The National Health Service may be severely stretched over the Christmas period. The most dangerous time is when doctors propose new limits that the government refuses to enact.
The economic calendar includes a third-quarter GDP report (GDP). The initial print was 1.3%, and similar figures are expected now.
Investors will undoubtedly watch Bank of England officials’ press interviews closely. Chief Economist Huw Pill has hinted at future hikes, which might help the Pound.
Final Figures Before Christmas
The Fed has spoken, and data is now front and center. The final GDP estimates for the third quarter are expected to show a modest 2.1% growth before a stronger year-end.
More effects will come from November’s durables sales. Is capital still expanding quickly? The nondefendant ex-air figure is the core of the core.
Headline PCE, the Fed’s favored inflation indicator, is also released. This month’s print is expected to be 4.5%, double the bank’s forecast. Weekly unemployment claims and income growth are all of importance.
With so many statistics issued at once, it is more impactful if they all point in the same direction. Most fourth-quarter economic indicators have been positive, so that these pre-Christmas disclosures may be cause for celebration.
While Omicron has already reached the US, its economic impact will be less than the UK’s. Less shopping may be noticed before Christmas, although this may be due to earlier spending.
President Joe Biden is working overtime to approve his Build Back Better budget before the holidays. Until a formal agreement among Democrats is achieved, markets ignore daily political news.
Analysis Of The GBP/USD
GBP/USD CHART Source: Tradingview.com
But bears still dominate in the Pound/Dollar. While the bearish momentum has slowed, the pair has formed a double-top at 1.3380, which is crucial for further recovery. Bears still gain from GBP/USD trading far beneath the 50, 100, and 200-day SMAs (SMAs).
After 1.3380, the next limit is 1.3405, a fall support line. Then came 1.3515, which slowed a rebound in mid-November.
Support comes from 1.3280, a mid-December resistance line, and 1.32, a November swing low. The 1.3175 dip from 2021 is critical support.