The GBPUSD pair held steady on Thursday morning as investors cheered the UK reopening plans and the latest strong economic data. It is trading at 1.3625, which was a few points above this week’s low of 1.3572.
UK reopening plans
In November last year, the Boris Johnson administration announced new measures to curb the spread of Omicron. The measures, known as Plan B had several provisions that placed restrictions on some businesses, especially those in the hospitality industry.
The government also encouraged more people to work from home and to avoid big gatherings. Mask mandates were reintroduced.
Now, facing pressure from the public, the embattled prime minister has announced plans to end the restrictions. In a statement on Wednesday, he said that these restrictions will end next week.
The change of strategy comes at a time when the number of Covid-19 cases has started slowing down. Health officials noted that the number of cases last week was about 3.6 million, which was lower than the previous week’s high of 4.3 million.
The end of Plan B measures was welcomed by most people and businesses. Therefore, there is a likelihood that the services and manufacturing sectors will keep doing well in the first quarter.
UK retail sales data
The next key catalyst for the GBPUSD pair will be the latest UK retail sales data that are scheduled for Friday. These are important numbers because of the number of people that the retail sector employs in the UK and the fact that consumer confidence is the biggest component of the GDP.
Economists expect that data by the Office of National Statistics (ONS) will show that the headline retail sales rose by 3.4% in December after rising by 4.7% in the previous month. On a month-on-month basis, the sales are expected to decline from 1.4% to -0.5%.
Meanwhile, the closely-watched core retail sales are expected to have risen by 1.1%, which will be lower than the previous 2.7%.
Still, there is a likelihood that the UK retail sales will have a positive surprise. In the past few weeks, retailers like Sainsbury’s, Marks and Spencer, and Tesco have all issued positive holiday sales guidance.
UK strong numbers
The UK retail sales comes at a time when the UK has published strong economic data. For example, on Tuesday, the GBPUSD pair moved higher after data by ONS showed that the country’s unemployment rate declined to 4.1% in November. That was the lowest it has been since the pandemic started.
And on Wednesday, the GBPUSD pair also drifted upwards after the strong inflation data. The numbers revealed that the headline consumer price index (CPI) rose from 5.1% in November to 5.7% in December. That increase was better than the median estimate of 5.2%.
Excluding the volatile food and energy prices, inflation rose from 4.0% in November to 4.2% in December.
Therefore, a combination of rising inflation and falling unemployment rate means that Bank of England (BOE) will be more open to tightening.
The two-hour chart shows that the GBPUSD has bounced back in the past few days. It has risen from a low of 1.3517 to over 1.3600. The pair has formed a bearish flag pattern and is hovering at the same point as the 25-day moving average. The MACD has formed a bullish crossover.
Therefore, because of the bearish flag pattern, there is a high likelihood that the pair will have a pullback as bears target the support at 1.3500.