This week began quite well for the British currency. On Monday, March 2, the pound reacted vividly to economic data from the UK and the USA, adding slightly to growth, and on Tuesday, it continued what it started. However, experts warn that steady growth is still far away. They expect that sterling will finally decide on the direction and will be able to grow further.
The gradual rise in the British currency was noted on Tuesday after an important statement by Mark Carney, Governor of the Bank of England. The head of the regulator drew the attention of the representatives of the G7 countries to the global economic shock caused by the COVID-19. At the same time, Carney did not lose optimism, believing that the impact of COVID-19 although powerful, would be short-lived. According to the head of the regulator, the UK monetary authorities, along with the Bank of England's Monetary Policy Committee, are considering a number of options in case the situation worsens. Carney emphasized that the Bank of England is ready to take all necessary measures of economic and financial support. He also called on other countries and central banks to take joint action to implement fiscal and monetary measures.
The current situation negatively affected the dynamics of the pound, although yesterday it went up against the US and European currencies. The counterbalance to this short positive was the heated debate between the UK and the European Union, which did not allow the sterling to rise, keeping it near five-month lows. Recall that on Tuesday the first round of negotiations between London and Brussels took place, during which Boris Johnson, the British Prime Minister, expressed dissatisfaction with the leadership of the European Union, stressing that the UK does not need EU rules and judicial rules. According to the plan, the first round of negotiations with the European Commission will last until Thursday, March 5. The key topics of the debate are annual trade between countries and security relationships. The next stages of negotiations will be held every 2-3 weeks.
In a situation of chronic instability, the British currency is close to a loss of reference. On the one hand, it is protected by Johnson, and this helps sterling to stay afloat. On the other hand, the risks associated with the unpredictable spread of the COVID-19 are increasing, slowing down the economic activity and growth of the sterling. According to recent macroeconomic reports, business activity in the UK manufacturing sector fell from 51.9 to 51.7 points. This gave odds to the American currency, which is still in high demand in the market. At the same time, business activity in the USA also stalled, which is why the decline in the GBP / USD pair quotes turned out to be moderate.
On Tuesday, the pair dropped to 1.2772–1.2773, however, after Carney's statement and the debate between London and Brussels was curtailed, it rose slightly.
The tandem's rise to 1.2795 was not very significant, but the pair rushed higher, trying to overcome the 1.2800 bar. These efforts have been successful.
On Wednesday, March 4, the GBP / USD pair was already trading near 1.2813–1.2814, but the pound failed to gain a foothold in these positions. The tandem again slipped from its former peaks, losing the conquered.
According to analysts, market confidence in the interest rate cut by the Bank of England by 25 basis points with a probability of up to 80% shakes the position of sterling, which is already at a crossroads. By the end of 2020, two such reductions are expected, which is fundamentally different from previous market expectations. In such a situation, the pound is very difficult to determine the direction, so it is in limbo. Experts believe that in the near future this trend will continue.
