GBP/USD holds steady ahead of the final UK Q4 GDP data

The GBP/USD is rising for the fourth straight day as the dollar sell-off accelerates and as forex traders wait for the latest UK GDP data. It is trading at 1.3950, which is 1.30% above last Friday’s low of 1.3775. 

US dollar weakness is the key driver

The GBP/USD is falling mostly because of the ongoing dollar weakness. The US dollar has dropped for the past three consecutive days as worries of inflation started to ease. Yesterday, data by the US statistics office showed that the headline and core consumer price index (CPI) did not rise as most analysts were expecting.

As a result, US stocks soared while the recent rally of bond yields declined. This is because, with inflation rising at a slower rate, there is a possibility that the easy money policies will remain for a while. 

The GBP/USD also rose as the UK Gilts yields started falling. The yield of the ten-year declined to 0.709% while that of the five-year declined to 0.315%. However, the longer-term yields rose, with the 30-year yield rising to 1.230%. 

The pair will next react to the UK GDP numbers that will come out on Friday morning. The final reading by the Office of National Statistics (ONS) is expected to show that the economy increased by about 1% in the fourth quarter. This was a better performance considering that the country went through lockdowns during the quarter. Still, the impact of the data on the GBP will be relatively muted since investors already have the range of the performance. 

The ONS will also publish the latest trade, construction output, manufacturing, and industrial output numbers. Economists polled by Bloomberg expect the data to show that industrial and manufacturing production declined by 4% and 3.6% in January. Further, attention will turn to next week’s Bank of England (BOE) interest rate decision. 

GBP/USD technical outlook

On the four-hour chart, we see that the GBP/USD pair reached a high of 1.4240 in February. Since then, the pair dropped by more than 3% to 1.3778 and has been moving upwards since then. The pair has formed an ascending channel and is slightly below the 23.6% Fibonacci retracement level at 1.4000. It is also inside the Ichimoku cloud. Therefore, the pair may continue to rise as bulls attempt to move above the 1.400 resistance level.