GBP/USD nosedives ahead of UK GDP and US inflation data

The GBP/USD pair crashed to the lowest level in more than a year as investors reflected on Boris Johnson’s Plan B rollout. The pair is trading at 1.3200, which is the lowest level since 2020.

UK GDP numbers ahead

The GBP/USD pair declined sharply after Boris Johnson announced a series of restrictions in a bid to curtail the spread of the pandemic.

The UK will now shift to the so-called vaccine passports. This means that many venues will be required to admit only people who have received the vaccine. In addition, the government encouraged most companies to embrace more people from working from home. Also, masks will be required for all people in the country.

Analysts believe that the new Plan B measures will slow the UK’s recovery, which has been stellar. For example, recent data showed that the country’s inflation and home prices have jumped while the unemployment rate has dropped sharply. 

The next key mover for the GBP/USD will be the latest UK GDP numbers that will come out on Friday morning. The numbers are expected to show that the UK economy expanded by 22.2% in the third quarter. This will be a spectacular performance since it happened as the country started to reopen. Still, these numbers will have minimal impacts on the GBP/USD.

Bank of England and US inflation

Therefore, the Bank of England (BOE) could be forced to turn dovish when it meets next week. Analysts at Goldman Sachs said that the BOE will hold raising interest rates until February next year. Those at Barclays also share the same sentiment.

The Office of National Statistics (ONS) will also publish the latest UK manufacturing and industrial production numbers. Economists polled by Reuters expect the data to show that the manufacturing production increased by 1.7% in October while industrial production rose by 1.7%. The biggest challenge that the sectors are facing is the supply chain disruption.

The GBP/USD pair will also react to the latest US inflation data. Economists expect the data to show that the headline inflation rose to 6.8% in November while core inflation rose to 5.0%. 

Stronger US inflation numbers will signal that a divergence between the Fed and the Bank of England (BOE) will emerge. Besides, the Fed is expected to be hawkish next week. Still, this sentiment has already been priced in, meaning that a sharp GBP/USD is not guaranteed.