The prospect of a Brexit deal this year, U.S. dollar weakness, risk appetite and stronger U.K. data helped propel GBP/USD above 1.43 making sterling the second best performing currency this week. Public sector finances beat expectations, earnings grew at a faster pace in November after a strong October and GDP growth accelerated in the last 3 months of the year. 2018 will be the year that a Brexit deal gets done and all signs point to continued progress. Recent comments from Bank of England Governor Carney were also positive with the central bank head looking for the global growth to accelerate and for the U.K. to recouple with the rest of the world. Despite these developments, sterling was driven higher primarily by U.S. dollar weakness and we expect that to remain the case in the coming week as the manufacturing and construction sector PMI reports are the most significant releases on the U.K. calendar.
Technically, the 2 flameout candles at the end of the week are concerning particularly as the peaks come right underneath the 200-week SMA. If GBP/USD fails to recapture 1.43, the next stop will be 1.40.
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