Fundamental Comment

Pound trades lower as UK economy shrinks 2.6%

Pound trades lower as UK economy shrinks 2.6%

The British pound traded lower versus the U.S. dollar on Friday after a report showing the U.K. economy could be on the brink of a double-dip recession as it halted its six-month run of growth in November. 

U.K. economy shrank 2.6% in November, following a 0.4% expansion in October, yet the contraction was nearly half the predicted fall of 4.6%. 

Compared to the pre-pandemic levels in February, November’s contraction meant that the economy was 8.5% smaller. Also, GDP slipped an annualized 8.9%, compared to an annual fall of 6.8% to October, according to the ONS.

The ONS attributed the plunge to the second national lockdown that was imposed in November. “Restrictions were in place to varying degrees across all four nations of the UK during November.”

However, the pound still braces for a weekly gain against the dollar, where it is currently trading near its highest level since May 2018.

Regarding the general sentiment, the $1.9-trillion stimulus announced by President-elect Joe Biden last night failed to cheer investors, who perhaps predicted a larger fiscal spending the quickly turned their attention to the challenge that will face Biden to get this package past the Congress.

European shares were down amid the surging corona cases across the old continent and on strict restrictions from the region’s two biggest economies.

German Chancellor Angela Merkel has called for “very fast action” to counter the substantial increase in Covid-19 cases, while France announced an early night curfew starting from Saturday. 

Later in the day, eyes will focus on important economic data from the U.S., including retail sales, industrial output, business inventories and consumer confidence. 

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