The pressure on the pound decreased on Monday, and the British currency settled significantly above the psychologically important mark of $1.20. However, sterling positions still look unattractive in comparison with other currencies. Despite the fact that the GBP/USD pair has already lost more than 500 points from the local high reached at the end of April, the decline could still continue. The pound risks remaining among the outsiders and going below support of 1.20. This can happen in the coming days.
Consider the reasons. Pressure on the pound increased after the Bank of England’s Chief Economist, Andy Haldane, said last Thursday that the regulator is considering different options for monetary stimulus to the economy. Negative interest rates and purchases of riskier financial assets are not excluded. This week, data on retail sales, inflation and business activity in the service sector will be released. Expectations on all points are depressing. If they are confirmed, the chances of additional monetary policy easing at the June meeting will increase.
The rhetoric of Michel Barnier added a negative effect to the GBP/USD pair. According to the EU’s chief brexit negotiator, the round of talks with the UK that ended last Friday did not bring positive changes. The parties have not managed to find common ground on the most pressing issues, and there is less and less time left before the UK leaves the EU. Prime Minister Boris Johnson has made it clear that he will not ask European partners to extend the Brexit period.
There was no interest in the issue that will determine the future economic relations between England and the EU. It is not clear what countries need to bring the negotiations to a new level. Perhaps political intervention, or a face-to-face meeting of negotiators, can contribute to the breakthrough. So far, the dialogue is being held online due to the coronavirus pandemic.
Deutsche Bank experts recommend getting rid of the pound. Here we are talking about selling the British currency against the Norwegian krone. England is inferior to the Scandinavian country in containing the outbreak of coronavirus and normalizing economic activity. Norway has already opened the economy to the level of Sweden, while business life in the UK is still sluggish. In addition, the country continues to report more than 3,500 new cases per day.
The BoE is facing a huge budget deficit through expanded QE. Negative rates may apply. The Bank of Norway completely ruled out the prospect of negative rates, as well as QE.
Deutsche Bank advised to take a closer look at the sales of GBP/NOK at 12.33 with a target of 11.85 and a stop of 12.60.
Additionally, the Norwegian krone could benefit from a potential recovery in oil prices. Brent gained more than 8% of the cost on Monday, a barrel of the North Sea mark rose above $35.
Deutsche Bank analysts are now optimistic about oil. Demand for oil in China has almost returned to the pre-quarantine level.