The pound has fallen again amid the turmoil triggered by the recent meeting of the Fed. However, it is still awaiting recovery, which may be supported by the Bank of England.
The Bank of England is expected to give a hawkish signal that is likely to boost not only the UK's economy but the national currency. The British pound will receive momentum for a rally. However, according to experts of Rabobank, having gained momentum amid the hawkish policy of the regulator, the initial growth of the GBP recorded after the meeting of the Bank of England will be lost.
The pound is weakening amid the robust growth of the greenback. However, it is not giving up, expecting to recover shortly. On Tuesday, September 21, the GBP/USD pair was traded near the 1.3685 level, trying to recoup the decline that occurred on Monday.
According to analysts, the pair's downtrend was sharp and unexpected. It was supported by an impressive volume of currency, which indicates big players' interest in such a decline. Recently, the GBP/USD was trading near the support level of 1.3655 showing horizontal price movement. The sideways trend is temporary and its breakout may signal a downtrend. Rabobank analysts had to admit that their three-month GBP/USD 1.39 forecast may prove out of reach for the pound by year-end.
Mixed messages about the BoE policy make the pound's future uncertain. In August the Bank's guidance stated that some modest tightening of monetary policy is likely to be necessary. The tightening is planned to be implemented during the next year. However, the pound may face difficulties in 2022 such as the BoE rate hike, Rabobank experts say.
It is believed that a hole in the UK budget represents the main factor that constrains the pound's growth. It arose as a result of a large-scale deficit of public debt. According to the Office for National Statistics report, the UK budget in August showed the second-largest deficit in the last few years. Public sector borrowing, excluding the banking sector, totaled 20.5 billion pounds. This is the second-highest reading since 1993. As a result, public sector debt, excluding banks, totaled 2,202.9 billion pounds, or 97.6% of GDP, which is the highest level since 1963.
Capital Economics is assured that the Bank of England and the Fed need to taper their stimulus programs. The financial support programs have done their job and should now leave the stage. Capital Economics concludes that the strong financial momentum the economy received last year will soon become a brake.
