Many experts are wondering: will the British currency be able to continue the rise that began at the end of last week in the current realities? Most analysts doubt this, although they admit the possibility of a gradual increase in the pound. In anticipation of a meeting of the UK authorities on budget issues, sterling took a wait-and-see attitude.
Experts expect that a revision in the country's annual budget will be discussed in today's meeting of the British authorities. They believe that Brittain's share of the funds will be used to combat the negative consequences of the coronavirus (COVID-19). On Wednesday, March 11, there will also be reports on the consumer price index in the UK, excluding the cost of food and energy prices. In case of disappointing information, the British currency will not be easy. In the short term, its rise will be an unattainable dream, and a fall will become a constant companion, experts say.
At the beginning of this week, the pound steadily went up, squeezing the dollar, but the fuse of the pound quickly dried up. On Monday, March 9, sterling in the GBP / USD pair rose to 1.3199, but could not stay near the psychologically important level of 1.3200. As a result, the pair slipped to the level of 1.3179, entering a bearish spiral.
On Tuesday, March 10, the tandem again failed to enter an upward trend. The GBP / USD pair fell to 1.3022–1.3023, and this decline continued throughout the day.
Wednesday morning, March 11, the tandem began with a fall to 1.2883, leaving no attempt to get out of the low range.
Further efforts of the GBP / USD pair aimed at raising were relatively successful, and now the pound is trading within 1.2902–1.2903.
At the moment, the GBP / USD pair soared even higher, to the level of 1.2944, while for a long time it was able to stay in these positions.
However, to date, sterling, which has previously received a number of advantages in relation to the greenback, has lost all its achievements. The pressure it faces intensified after the information that the Ministry of Finance of the United Kingdom is ready to change plans to increase investments, that is, completely revise the current budget. Dramatic changes are due to the current tense situation, requiring leveling of consequences due to the epidemic of coronavirus. The new measures by the British government are expected to help rebuild the economy and secure the bond market.
At the same time, analysts recall that changes in fiscal policy alone are not enough to eliminate a recession in the economy. The delayed effects of this fall may turn out to be a time bomb for the pound. Experts are confident that in order to mitigate the negative impact on the economy, decisive measures will be necessary on the part of the Bank of England, providing for changes in monetary policy. Note that at the beginning of the week the regulator made it clear that it would do everything necessary to protect the country's financial and monetary stability.
Many experts believe that today will be a benchmark for the GBP / USD pair. If the tandem returns to a key indicator of 1.3200 or higher, the next target will be significant levels of 1.3280 and 1.3320. The British currency will also benefit the weakening dollar, caused by the Fed's decision to switch to a softer monetary policy. Experts are sure that against this background, the greenback will continue to lose its position. Most analysts argue that at the next meeting, scheduled for March 17-18, the Fed will lower the rate again. This will deprive the greenback of advantages, while the euro and sterling, on the contrary, will open the way for growth.
In addition to the current problems caused by the spread of the COVID-19, the sterling feels severe pressure due to the uncertainty surrounding Brexit. A statement by Andrew Bailey, the new Governor of the Bank of England, who will take office next Monday added fuel to the fire. He emphasized that nothing would stop the regulator from taking incentive measures regarding monetary policy ahead of schedule (March 26) if the state of the economy required it. At the same time, economists expect that by March the Central Bank of England will reduce the key rate to 0.5%.
In addition to a possible revision of the state budget, the dynamics of the pound will be affected by data on industrial production and UK GDP in January 2020. If they worsen, analysts emphasized that it makes no sense to expect growth from sterling. According to preliminary forecasts, the volume of production in the country's manufacturing industry will decrease by 3.5% year on year, which will not add to the pound of optimism. Experts focus on data on the manufacturing sector of the United Kingdom, which plays a fundamental role in the formation of GDP. However, if the statistics turn out to be better than forecasts, then in the short term the pound will be able to strengthen in relation to the greenback, experts conclude.
