The British pound enjoyed a strong rally against the US dollar last week. After GBPUSD opened at 1.2792, the currency pair spent a great deal of the week trading around 1.2840. Towards the latter part, there were enough buyers in the market to push GBPUSD above 1.2900 before closing the week with over a 100-pip gain at 1.2899.
Top-tier data from the UK mostly disappointed expectations and had little to do with the pound’s gains. The GDP report for the third quarter of the year disappointed forecasts at 0.3% vs 0.4%. Manufacturing production showed a 0.4% contraction versus a -0.2% consensus. Average earnings also printed lower at 3.6% than estimates at 3.8%. Inflationary pressures were also softer than expected at 1.5% versus 1.6% from a year ago. Lastly, consumer spending for October declined by 0.1% and missed the forecast for a 0.2% uptick.
News on the political front were what buoyed GBPUSD up the charts. On Monday, Brexit Party leader Nigel Farage announced that he would not contest Tory Party seats. Then on Friday, the currency pair rallied on news that the Brexit Party will give up 43 seats.
Market participants seem more concerned about the UK striking a Brexit deal with the EU more than economic data. Therefore, news about the Conservative party maintaining majority is considered good news as it would make it easier for Prime Minister Boris Johnson to push for a deal in Parliament.
Tomorrow, the prime minister is scheduled to have a live debate with Labour Party leader Jeremy Corbyn. If polls show that the Tory party is able to hold on to its lead against labor ahead of next month’s general elections, we could see the pound extend its rally.
The weekly chart shows that GBPUSD has broken resistance at the falling trend line from the highs of April 15 2018, March 10, 2019, and May 5, 2019. There’s also a bullish flag chart pattern. A break above the currency pair’s highs on October 21 at 1.3013 will mean that GBPUSD is on its way to its next resistance level which is its yearly high at 1.3380. On the other hand, if Boris Johnson is unable to impress, GBPUSD could see a downside break from the consolidation and drop to 1.2592 where it found support in May2017 and December 2018.Download our latest quarterly market outlook for our longer-term trade ideas.