Analysts say that this week will be tense for the pound. The British currency will have to make a lot of effort not to fall under the weight of disappointing macro statistics. According to experts, it will stand, but sometimes it will drop due to high volatility in the GBP/USD pair.
At the same time, they call the current macro-statistics as the most important factor determining the near direction of the pound’s dynamics. Unfortunately, neither rises nor breakthroughs are expected from it. The market is counting on a relatively good result, which does not shock investors. However, weak statistics from the UK can flatten an already unstable pound.
According to the results of 2020, the previous statement of the Bank of England on the possible collapse of the national economy by 14% worsens the situation. In the event of such a turn of events, experts emphasize that this will be the worst indicator for almost 300 years. TThe influence of the British regulator on the dynamics of the pound is difficult to overestimate. After the last meeting of the Bank of England, which clarified almost nothing for the market, the pound could not enter an upward trend. Until recently, the British currency was trading in the range of 1.2300 – 1.2450, gradually declining. According to economists, the pound mainly follows the dollar, being strongly influenced by the dynamics of the USD.
In case of a significant decline in statistical data, there will be an increased pressure on the pound, so many experts advise selling GBP. At the same time, the probability of additional easing of monetary policy by the Bank of England is sharply increased. Experts believe that this will lead to another round of decline in the GBP/USD pair. On Tuesday, May 12, the pound was trading against the US currency near the level of 1.2319, but the situation worsened in the future. On Wednesday morning, May 13, the GBP/USD pair ran in the range of 1.2276 – 1.2277, leaving it from time to time, but not rising too high.
Current inflation forecasts in the UK do not forecast positive changes. According to analysts, the key British economic indicators will go into the red zone due to the negative consequences of the COVID-19 pandemic. It is possible that the volume of GDP in the first quarter of 2020 will decrease by 2.5% in quarterly terms and by 1.6% in annual terms. The market also expects data for March 2020, which will bring another portion of the negative for the pound. It is expected that in March, the British economy will sink by almost 8%, and industrial production will fall to -5.5 m / m and to -9.2 y / y. According to experts, the worst data can be expected from the processing industry, where it is predicted to decline to -6.1 m/m and to -10.2 y/y.
Experts consider another unresolved issue with the British exit from the EU as another vector of the pound’s further dynamics. The current political uncertainty is a strong factor in the decline of the GBP/USD pair. It can be recalled that the UK will have to negotiate with the leaders of the Euro bloc on Brexit by the end of 2020, and the negotiations will certainly not be easy. Against this background, the GBP/USD pair may decline to the level of 1.2200, from which it is now separated by very little.
On the other hand, ING’s currency strategists are confident that the pound will weaken markedly next month, when the deadline for extending the Brexit transition period ends. Although trade negotiations between the UK and the EU have resumed, the British authorities do not intend to extend the transition period. ING considers this fact to be a “brake on the pound sterling”, which is why the market is increasing its short positions. Experts are sure that the GBP/USD pair forms the potential for its decline in the current situation.
According to experts, the British currency still retains its stability, even in the event of the release of the next gloomy statistical data. They do not rule out a short-term subsidence of the pound, but are confident in its further recovery. Analysts pay attention to the impressive potential of the British economy, accumulated over many years, which will allow it to stay afloat.