According to analysts, the Bank of England involuntarily checks the pound for strength from time to time, offering it tests in the form of a rate reduction. However, this check was not needed this time: the regulator did not introduce incentive measures and soften the monetary policy once again, not seeing it as necessary. Thus, analysts say that this allowed the pound to continue to rise.
On Thursday, March 5, the British currency strengthened against the US and European currencies. The reason for this was a weakening expectation of an immediate rate cut by the Bank of England. Many market participants feared that the regulator would follow the example of the Fed and drop rates to help the British economy counter the negative effects of the coronavirus COVID-19.
The new head of the Bank of England, Andrew Bailey, admits a reduction in interest rates in the short-term, but now, he is not in a hurry to take incentive measures. He is sure that the regulator should wait to carefully analyze and evaluate the consequences of the economic blow from the COVID-19 epidemic. Thanks to the actions of A. Bailey, the pound, which dropped due to the expectation of a rate cut, was able to regain its position.
On Thursday, the British currency showed steady growth after the statements of the new Governor of the Bank of England, and managed to gain a foothold in their positions. Yesterday, the pound added 0.4%, reaching 1.2918-1.2919 and ascending from the 4.5-month low of last Friday.
This Friday, March 6, the GBP/USD pair is trading near the level of 1.2976. This level is considered to be a new high by the experts. The rise of the "British" currency was also facilitated by the current weakening of the dollar, which could not confidently respond to the Fed's decision.
Analysts fear that if the Bank of England cuts rates further, the pound will share the fate of the dollar and will lose the track for a long time. On the other hand, experts warn that if the GBP / USD pair consolidates below the level of 1.2918, they will quickly slide to the support level of 1.2875, and if interest rates decrease, the pound will return to the lows of 1.2833 and 1.2799.
The British currency may be tripped by the high probability of a trade failure between the UK and the European Union. The reason for this is the stubbornness of Boris Johnson, the British Prime Minister, who is ready to leave negotiations without a deal if Brussels will not compromise. At the same time, both sides are not opposed to concluding an agreement providing for zero tariffs. However, experts say that the deals of the EU may turn out to be unbearable for the UK.
In this situation, analysts are sure that the pound will not be able to overcome the level of 1.3000. It is only possible to rise above this level when changing the position of all participants and reaching a compromise. At the moment, the pound is trading near the low of the last 4.5 months against the euro, responding to increased fears about difficult negotiations between London and Brussels. At the same time, experts do not exclude that quotes of the GBP / USD pair will be able to recover to the level of November – December 2019 by the end of March, and thus, the interest of the investors in pound will increase.
