GBP/USD passes $1.39 on upbeat GDP and lockdown easing optimism

The pound rallied on Friday as markets welcomed the publication of the UK’s stronger-than-expected GDP figures.
 
Sterling has extended this momentum into the start of this week, with GBP/EUR jumping to €1.1452 and GBP/USD accelerating to $1.3908. GBP/CAD is buoyed at C$1.7618, while GBP/AUD and GBP/NZD hold steady at AU$1.7868 and NZ$1.9192, respectively.
 
Looking ahead, we may see coronavirus developments drive market sentiment this week, with vaccination progress and the potential lifting of lockdown measures in focus.
 

What’s been happening?

The pound struck higher at the end of last week’s session following the publication of an upbeat domestic GDP release.
 
According to data published by the Office for National Statistics (ONS), the UK economy expanded by 1% in the last quarter of 2020, beating forecasts for a more modest 0.5% expansion.
 
However, Sterling's gains were tempered by the accompanying annualised GDP release, which revealed the UK suffered a record slump in growth in 2020 as a whole.
 
The US dollar, meanwhile, staged a comeback on Friday, with the ‘Greenback’ rallying in response to souring market sentiment as well as a strong pick up in US Treasury yields.
 
However, these gains were capped after the University of Michigan reported a surprise fall in its latest US consumer sentiment index.
 
This rebound in the US dollar came at the expense of the euro, with the negative correlation in the pairing, as well as ongoing concerns over the EU’s slow rollout of vaccinations, putting pressure on the single currency.
 

What’s coming up?

Turning to the week ahead, the focus for GBP investors will be split between the UK’s latest PMI releases, where another slump in economic activity this month is likely to pressure the pound, as well as speculation on the timetable for easing national lockdown measures.
 
With reports suggesting the UK government will look to reopen much of the economy by April, this could help to spur Sterling higher.
 
USD investors will be on the lookout for stimulus headlines this week, which alongside the latest US retail sales figures could provide fresh impetus for the US dollar.
 
In the meantime, however, today will see the publication of the Eurozone’s latest industrial production figures, with the euro likely to face some headwinds amidst forecasts that factory output will have slumped throughout the bloc in December.