The pound sterling is growing against the weaker US dollar, but not against the euro. Investors are following the difficult Brexit negotiations. Analysts say that the lack of time to study the terms of the deal carefully makes it difficult to come to an agreement.
The British currency gained 0.4% against the US dollar and is trading at 1.3567.
The value of the euro against the pound has not changed, so the pair is trading at 0.8988.
Experts believe that the growth of the pound sterling is unlikely to last long if the UK and the EU conclude a trade deal, as in this case the Bank of England may lower interest rates. Investors are increasingly betting on a 10 basis point rate cut by the Bank of England over the next year. Even after a successful deal, Brexit will weigh on the UK economy.
Manufacturing and services sectors in the UK improved in December amid easing the restrictive measures against the spread of the coronavirus, but these sectors are still under pressure.
However,job cuts in the manufacturing and services sectors could increase in the coming months in the UK as the epidemiological situation does not improve.
Extending the UK government's measures to the end of March helped stem the job cuts.
However, quarantine restrictions due to the coronavirus are likely to be tightened rather than eased in the next two months. This, in turn, weighs on the economy which will be slow to recover.
Moreover, the unemployment rate is projected to peak at around 6.5% in the second quarter of 2021.
Nevertheless, economists hope for successful vaccination, thanks to which it will be possible to defeat the coronavirus and return to normal life. Then the GDP growth in 2021 will be much higher than what most analysts currently expect.
On the other hand, if the UK and the EU fail to come to an agreement and achieve a deal, the pound sterling could collapse by 20%.
In this case, the single European market will be closed for Britain and will have to trade according to the rules of the World Trade Organization, that is, with duties and quotas. Analysts believe that the GBP/USD pair will fall to 1.10 if there is no deal and the existing agreements are terminated.
