Observing the current price “swing” of the pound, many analysts predict its defeat. However, like most market participants, their opponents do not agree with this position. The British currency is quite stable, and it does not threaten to be at the fringes of the financial world, experts reassure.
A number of political factors, primarily related to Brexit, undermine the pound but macroeconomic data provide strong support. Analysts were pleasantly surprised by the current UK labor market results. Despite the significant number of applications for unemployment benefits, its level did not leave record low limits, amounting to only 3.8%. Note that the number of applications did not exceed 14,900, although analysts expected 22,600. At the same time, the level of salaries in Foggy Albion remained at around 3.2% despite forecasts for a decrease to 3%. The current situation allowed the GBP / USD pair to achieve a small correctional growth on Tuesday, January 21, which then continued on Wednesday.
Yesterday, the GBP / USD pair left the low range at 1.3005, decisively moving up. The efforts of the tandem were rewarded as by the end of the day, the pair reached 1.3054–1.3055, maintaining an upward momentum until the next day.
Morning of January 22, began positively for the pound, but the GBP / USD pair could not gain a foothold at this level after having reached 1.3060.
The takeoff was expected to be followed by a recession. The tandem collapsed to a critical value of 1.3046–1.3047, rushing to the bottom. With a tremendous effort, the GBP / USD pair managed to stay afloat. However, the tandem later entered a rising spiral overcoming the attraction of the bottom.
According to experts, the long-term weakness of the British economy was slightly offset by increased macroeconomic statistics, which is good news for the market. For the first time in a long time, sterling received powerful economic recharge, in the wake of which it has grown a little. However, experts believe that it is too early to talk about the upward trend in the pound. Analysts warned against excessive euphoria regarding macroeconomic data pleasing the market, believing that their importance for the dynamics of the “British pound” is greatly exaggerated.
The concern of investors and traders is caused by the difficult situation that has developed around Britain’s exit from the EU. The current uncertainty about a trade deal with Brussels worries participants and shakes the position of the British currency. Recall that in late January, Britain should leave the European Union, after which another round of trade negotiations is expected, which can last until December 2020. One can only guess about their outcome.
Another traumatic factor for the “British pound” is the likelihood of monetary easing by the Bank of England. The catalyst for this decision may be the weak employment data in the UK for November-December of 2019. According to preliminary forecasts, the average wage may deteriorate, and the unemployment rate in the country will not leave the 3.8% mark. Recall that for revenge months in a row, the growth rate of British salaries has been declining, and this gives the regulator an opportunity to lower interest rates.
Changes in monetary policy by the Bank of England can be prompted by such negative factors as a reduction in inflation, a noticeable decline in the industrial sector and a deterioration in economic growth indicators, which have not been observed over the past 8 years. According to experts, this brings the UK closer to the economic recession and puts extreme pressure on the national currency. Many market participants fear that a combination of negative factors could send the GBP/USD pair to outsiders in the foreign exchange market. According to analysts, global fundamental factors are not in favor of the British currency.
Pressure on the pound remains both from the side of geopolitics particularly, Brexit issues and very elusive support from the USA, and from the side of macro-statistics which is the current reports on the UK economy. Sterling tries not to fall under the yoke of negative factors, and in most cases, it succeeds. Experts cleared, in the short term, we are not talking about victory but it’s premature to write the pound to outsiders of the market.
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