Markets grow on rumors and fall on facts. When drivers are included in the quotes of a particular currency pair, it begins to behave inappropriately. In fact, this means that the driver is played back. The fate of the British pound will depend on whether or not such a factor as the extension of the transition period in the framework of Brexit beyond 2020 is determined. In March, it collapsed to the lowest levels in the past few decades due to rumors about the reluctance of the government of Boris Johnson to hold a dialogue on extending the transition period due to the deterioration of the epidemiological situation and the associated global recession, but then managed to recover a significant part of the losses.
In times of global economic downturns, investors tend to look at a single currency - the US dollar. Its strengthening indicates a high demand for safe-haven assets, that is, there is still a lot of time before the end of the recession. On the contrary, the weakness of the "American", paired with the rally in world stock indices, signals that the worst is over. The coronavirus made the pound forget about factors such as Brexit and the 35% subsidence of the economy of the Foggy Albion in the second quarter in accordance with the forecasts of the Office of Budget Responsibility. The GBP/USD pair is floating in the direction where the wind blows from the United States.
In this regard, the statement of Donald Trump about the benefits of a strong dollar would seem that it should have breathed new life into the ranks of "bears" for the analyzed pair. For a long time, the US President openly criticized the Fed and spoke about the need to weaken the national currency. In April, everything turned upside down. However, the fact that the market ignored the speech of the head of the White House, and the growth of the S&P 500 did not lead to a weakening of the USD index, suggests that the dollar's rival currencies may soon have their own life. Then investors will remember about Brexit!
Dynamics of the S&P 500 and GBP/USD
Another signal of returning interest in the pound will be its increased sensitivity to macrostatistics. A busy economic calendar, including releases of data on the labor market, inflation and retail sales, draws attention to the pound. And although I do not promise a rapid reaction to them, the data will help you understand what buyers and sellers of GBP/USD are breathing. According to MPC Member Silvana Tenreyro, consumer prices in Britain may slow to 1% or lower amid falling domestic demand due to coronavirus and social isolation, as well as falling oil prices. How will the Bank of England behave, which has already done a lot to help the economy?
Dynamics of British inflation and repo rates
In the meantime, official London is extending the quarantine, and Finance Minister Rishi Sunak is increasing the assistance program for stay-at-home workers from £42 billion to £56 billion.
Technically, finding the quotes of the GBP/USD pair above the dynamic support in the form of moving average lines indicates that the desire of the "bulls" to continue the northern campaign has not disappeared. A break in the resistance at 1.2625-1.263 will cause you to open long positions.
GBP/USD, the daily chart
