FX.co ★ Pound's optimistic prospect amid Britain's potential rapid GDP growth

The British pound is slowly but surely moving towards its target. The $1.4 mark of the "bulls" on GBP/USD is not confused by either weak statistics on business activity, or the increased risks of a double recession, or the reasoning of the head of the Bank of England, Andrew Bailey, about negative rates. They use the pullbacks of sterling to buy it, and such a strategy, starting in October, invariably gives a positive financial result. Markets are growing on expectations, and the situation is such that, despite the cloudy present, the future of the economy of Great Britain is painted in bright colors.

It would seem that the disappointing retail sales statistics for December and the worst drop in purchasing managers' indices since March due to lockdown, bureaucratic hurdles due to Brexit, and disruptions in port operations should have cooled the fervor of GBP/USD buyers. Business activity in the service sector, which accounts for about 80% of Britain's GDP, fell from 49.4 to 38.8 in January, and research company IHS Markit reported a double recession in the second quarter. The PMI figures were worse than in November when the economy contracted by 2.6%.

However, Andrew Bailey was optimistic. The head of the Bank of England spoke a lot about the adaptation of the economy to the pandemic and cited the example of online stores that felt even better during COVID-19 than before it. In my opinion, the positions of the market, which does not want to sell the pound, and the head of the BoE are quite clear. Thanks to massive fiscal stimulus and the reluctance of UK citizens to spend money, the savings rate in the UK soared to an all-time high in the second quarter of 2020 and continued to be elevated in the third quarter. As soon as the lockdown is over, Britain is entitled to expect rapid GDP growth.

Dynamics of the savings rate in Britain

Much will depend on vaccinations and herd immunity, and it must be acknowledged that London is doing everything it can to make the nightmare a thing of the past. As of January 24, 10% of the population in the United Kingdom was vaccinated. The figure does not reach 30% in Israel and up to 20% in Saudi Arabia, but we are talking about a 5 times higher vaccination rate than in continental Europe.

Vaccination dynamics in Europe and the USA

In the last week of January, the sterling will be tested by statistics on the labor market. Gloomy forecasts for unemployment and employment do not inspire optimism, but as often happens recently, a pleasant surprise may inspire the GBP/USD bulls to feats. They also have certain hopes related to the Fed meeting, following which Jerome Powell will certainly try to convince investors of the central bank's passivity for a long period of time.

Technically, the strength of the GBP/USD upward trend is beyond doubt. In such conditions, rollbacks in the direction of the moving averages, followed by a rebound from them and placing a stop order at the high of the test bar should be used for purchases with a target in the area of 1.4-1.42. Another reason for opening long positions may be a confident storm of resistance at 1.3735.

GBP/USD daily chart