The pound sterling continues to cling to recent gains amid weak greenback despite the UK's record-breaking economic decline.
According to Keith Jax, strategist at Societe Generale, the GBP / USD rate is still determined by the dynamics of the US dollar, and not by the UK statistics.
From the data released the day before, in the period from April to June, the United Kingdom's GDP contracted by 20.4% compared to the first quarter of this year.
"Many experts for some time predicted a decline in the UK GDP in the second quarter by about 20%, so yesterday's ONS report did not come as a big surprise to the market, despite the scale of the reduction," noted RBC experts.
"There was no doubt in which direction the indicator would change. This strong decline may be partly due to the longer quarantine periods in the UK compared to other countries, "said Kieran Cleere of Silicon Valley Bank.
At the same time, June data on UK GDP showed the beginning of recovery as quarantine restrictions in the country were eased and the economy began to recoup losses, increasing by 8.7% on a monthly basis.
"The economic benefits of lifting the blockage may soon emerge, and markets will seek to understand to what extent this momentum will continue," Cleere added.
Nomura believes that Britain's economy will return to pre-crisis levels no earlier than 2023. "Among the economies of the big five in Europe, the UK may be one of the slowest in terms of recovering pre-viral GDP," said Nomura experts.
"We expect inflation in the country to remain volatile, fiscal and monetary policies extremely soft, and the pound to weaken against the US dollar to $ 1.27 over the three months," they added.
Since the end of July, the GBP / USD pair has been trading in the range of 1.2950-1.3200.
"Investors are now looking forward to the next chapter in trade talks between London and Brussels, which appear to be the true driver of the pound after UK GDP data failed to particularly knock sterling out of its recent relatively tight ranges," strategists at ING said.
"Until there are positive shifts in the Brexit negotiations, the pound is likely to be under pressure," as per Commerzbank analysts.
"After Britain officially fell into the deepest recession on record in the second quarter, there is no reason to be overly optimistic," they said.
However, the GBP / USD pair did not drop much on this news.
"The key support at 1.3020 and 1.2950 remains intact, but a breakout of the second level will signal a deeper correction with a potential target at 1.2600-1.2800. We believe that such a drop will offer a convenient opportunity to buy the pair ahead of the September Fed meeting, at which the regulator can take a step towards inflation targeting, "Westpac said.
