Unlike the euro, which is sensitive to the decision of the eurozone finance ministers on fiscal stimulus; the loonie, which is under pressure amid oil price drop; the aussie and the kiwi, which depend on the revival of the Chinese economy in the second quarter; the British pound is drifting. Moreover, the GBP/USD pair is likely to react to the US macroeconomic statistics more than any other pair. Against this background, the pound may become the most intriguing currency by the end of the week.
Interestingly, the pound continues to come under pressure. However, it has the background to stop since the British government said that it would continue recovering economic and political independence in the UK by the end of the year in response to the collective letter on extending the Brexit transition period amid the coronavirus pandemic. In other words, the political risk remains but the GBP/USD pair has managed to rise to 1.25 from 1.14.
The fact that the Bank of England began directly financing the extraordinary expenses of the Cabinet, allowing the government to increase its account from the usual £370 million to practically unlimited size, didn't surprise the markets. Similar events took place in 2008 when the account rose to £20 billion. However, in 2020, this figure is likely to grow even higher. In theory, the direct financing of any government leads to an increase in public debt, which can have a negative impact on a national currency. However, in this case, it involves temporary and short-term operations. That is why, there is nothing to worry about.
Seems like the pound is not going to react on the domestic news. The pair has drifted lower for a while after the report that British Prime Minister was admitted to intensive care. However, speculators managed to buy out the pound. Interestingly, hedge funds have been actively reducing net longs for the pound over the past few weeks.
British pound speculative positions
The most important news set for release this week will be US retail sales and unemployment data, Chinese GDP for the first quarter, and IMF's forecasts for the world economy. Against this background, the greenback is likely to start recovering positions lost at the beginning of the month.
If the GBP/USD pair falls below the support level of 1.215, a broadening wedge, a bearish chart pattern, is likely to occur. At the moment, it is preferable to buy the pound on pullbacks to 1.2335 and 1.23 followed by the rebounds from the support levels.
GBP/USD, daily chart
