The British currency, which recently experienced strong volatility and fell under the rink of the price "swing," fears a recurrence of such events. The coming week also does not promise to be calm for the pound. Experts fear another subsidence of the pound, although they rely on its stability.
Losses of the British currency began at the start of this week. On Monday, May 18, it declined 540 points from April highs. Analysts are worried by the high probability that the pound will remain in the ranks of outsiders, consolidating below the support level of 1.2000. Similar price "swings" can lower the pound to low positions by the end of the week.
At the same time, relative stability in the GBP/USD pair was recorded in the morning on Tuesday, May 19. The pair opened at 1.2200, but there was no positive continuation. Subsequently, the GBP/USD pair was trading near the range of 1.2197 - 1.2198. In the current situation, experts at Deutsche Bank recommend selling the pound. Experts do not expect a speedy rise in the British economy, which has been significantly affected by the negative consequences of the COVID-19 pandemic. Difficulties on the verge of collapse, which faced the economy of Foggy Albion, destructively affect the national currency. According to analysts, the pound will have to survive both high volatility and the next price "swing" in the near future.
Another pressure factor for the British currency, which does not allow it to strengthen, may be the introduction of negative rates, which the Bank of England has repeatedly stated. At the moment, the regulator has to cope with an impressive budget deficit through an expanded monetary easing (QE) policy, but the results are not encouraging. In this regard, the Bank of England allows the implementation of various options for monetary stimulation of the national economy, including negative interest rates and the acquisition of risky financial assets.
An additional negativity for the pound could be extremely disappointing macro statistics. On Wednesday, May 20, important information is expected on the UK labor market, PMI indices, as well as information on inflation, retail sales and business activity in the service sector. Based on preliminary forecasts, the producer price index is expected to collapse by -3.6% year on year. As a result, statistics will set the bandwagon on the market once again. You can't even count on relatively positive data. According to analysts, possible gloomy statistics increase the chances of additional easing of monetary policy in June 2020.
Another cause for concern is the fact that the British government, hiding behind the consequences of the unprecedented economic shock from COVID-19, is ready to go for the "hard" Brexit. It can be recalled that a trade deal with the EU should be agreed before the end of this year. If this scenario is cancelled, foreign trade between the UK and other countries will be carried out without mutual agreement.
The problems associated with Brexit, destructively affect the pound, then lowering its price, then rising again. The British currency has repeatedly experienced the effect of price "swings", which does not add optimism to the GBP/USD pair. The catalyst for this movement was the next negotiations between London and Brussels, which did not bring positive results. The parties could not reach a mutual agreement, and Prime Minister Boris Johnson refused to ask the EU to extend the transition period for Brexit. It can be recalled that the deadline for extending the transition period expires next month.
After all the economic and political mess, the pound fell to a seven-week low of 89.58 pence per 1 euro, and in relation to the dollar was at $ 1.2107. Analysts said that the last problem for the GBP was the inability to agree on a trade deal with the EU. According to experts, only quick and decisive actions by one of the parties can break the deadlock. Experts find it difficult to answer which of the opponents will be the first to make a fateful step, determining the vector of the UK's future path. It is possible that it is the one who is more interested in this, that is, the British government. The pound will then follow the economy in a given direction, analysts say. Therefore, they expect that the pound will still reach the desired balance, and price "swings" will remain in the past.
