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MT5.com - Pound ready to retest $ 1.20

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Analysis News:::2020-05-22

Pound ready to retest $ 1.20

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The US dollar again had the opportunity to take advantage of its protective functions, and China helped in this, which introduced an injection of reality into the markets while angering the US. As the US-China conflict continues to boil, the price of the dollar begins to rise. On Friday, it strengthened quite well to a basket of competitors, gaining back some of its losses. At US trading, its rate against major competitors rose by 0.5% and buyers tried to push the dollar index above the psychological mark of 100.

USDX

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Tensions between the US and China will continue, at least in the short term, and the dollar will go up especially in relation to currencies such as the euro, the pound, and the offshore yuan. Nevertheless, a trade deal between large partners will be reached sooner or later, since it is in the interests of both parties, they give a cautious forecast at Mizuho Bank.

The rapid buildup of financial assistance from the United States draws not in favor of the US dollar itself. Such support for a pandemic-affected economy could lead to dollar devaluation and fluctuations in other markets.

Meanwhile, the euro, which came under pressure from a strengthening dollar, could not stay near the key level of $ 1.10. This forced traders to review long positions in the euro.

EUR / USD

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Meanwhile, the forecast for the pound remains unchanged. The trend is down and nothing else.

Regular market talks about QE and lowering rates in the UK to negative values seem to turn into realistic expectations. The Bank of England intends to take this step since the April rate cut from 0.75% to 0.1% did not bring the desired results. It is worth paying attention to the fact that the head of the Central Bank of England, Andrew Bailey, who was an opponent of negative rates, suddenly changed its perspective.

Bailey made it clear to the markets that such an opportunity is being discussed and a negative rate has the right to life. Against this background, the pound is expected to further decline. In the short term, the GBP / USD pair is set to retake the level of 1.20.

GBP / USD

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An additional negative for the pound is that Britain will not extend the transition period. Pressure on sterling will increase in anticipation of the expiration in June of the deadline for extending the Brexit transition period, predicted by Bank of America. Most tangibly, it can sink to the euro, Swiss franc, and Japanese yen.

It is possible that the British currency will face a sharp narrowing of profitability spreads between the UK and other G10 countries. This is due to the fact that the Bank of England is seriously considering the introduction of negative interest rates in the country.

A Zotova
Analyst InstaForex
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