Everything is relative. Due to the large number of deaths from COVID-19, the severity and duration of the lockdown and the "social face" of the British economy will sink deeper than its American or European counterparts, but it will recover faster in 2021, this is according to the Bank of England. GDP will not rise to pre-crisis levels before the end of next year. However, who said that it is easy for others now? The optimism of Andrew Bailey and his colleagues inspired the pound, but the US labor market report for July quickly restrained the buyers of GBP/USD.
The fact that the markets live in the future, and investors are actively buying rumors, could be convinced more than once in 2020. US stock indices are about to recover to the levels that took place before the pandemic, and they will most likely rewrite historical highs on the expectations of V- figurative recovery of the US economy. Yes, the chances of such a scenario are currently small, but still. To the surprise of the dollar bears, employment outside the agricultural sector is growing for the third month in a row, which looks like a pleasant surprise amid a sharp increase in the number of coronavirus infected in July.
The pound is no exception. Yes, Britain found itself in a deeper hole (according to BoE forecasts, GDP will decline by 9.5% by the end of this year) than the eurozone (-8%) or the United States (-5.75%), but the return of the economy of Britain to the trend appears to be faster than its main competitors to the Central Bank.
Forecasts for GDP
The pound reacted positively to the Bank of England's announcement of a reduction in QE asset purchases from£6.9 billion to £4.4 billion a week from August 11, as well as to Andrew Bailey's phrase that there is currently no need to use negative interest rates, as they are likely to reduce the desire of banks to lend to the economy. Until the last meeting of the MPC, the futures market put a drop in the REPO rate below zero in the first half of 2021 in the quotes of its instruments. If the BoE is not going to do this, then this is good news for the pound. However, the bears were not particularly convinced. According to City, the fact that the regulator did not say anything about the lower limit of borrowing costs indicates that they will collapse into a negative zone in the future.
Interestingly, Reuters experts believe that monetary policy will fade into the background in the near future, and the pound will fall under the influence of Brexit. The consensus forecast assumes a decline in the GBP/USD quotes to 1.29 and 1.28 in 3 and 6 months with a subsequent recovery to 1.31 in a year. In my opinion, Boris Johnson will be able to find a common language with the EU. Its minister, Michael Gove, notes that the language of the European Union has recently changed, which makes it possible to count on the signing of an agreement.
This week, investors' attention will be focused on the release of data on the British labor market and GDP. If Britain's economy did not sink as deeply as Reuters predicts in the second quarter, it will serve the pound well. It makes sense to use the GBP/USD pullbacks to support at 1.3, 1.2955 and 1.288 for purchases.
Daily chart of GBP/USD
