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Analysis News:::2020-08-04

GBP / USD: pound still strives for growth risking collapse at any time


The pound sterling has managed to recoup almost all of the losses it suffered against the US dollar following a sell-off in the midst of the pandemic panic in March. Its recovery has been particularly impressive in recent weeks.

In July, the GBP / USD pair showed the strongest monthly growth in the last ten years. However, experts warn that the strengthening of the pound should be treated with caution.

According to them, the confirmation of the fact that the weakness of the dollar is the main driving force behind the growth of the sterling is the dynamics of the British currency against the euro and yen.

The pound sterling has risen in price against the US dollar by almost 15% from the March lows. Over the same period, it valued less than 6% against the euro and less than 12% against the yen.

"The rally in the pound is likely to lose strength above the $ 1.30 mark as the medium-term outlook for sterling remains negative due to lingering Brexit risks. The slightest improvement in demand for the dollar may lead to a decrease in the pound to $ 1.28-1.30, "strategists at Swissquote Bank believe.

At the end of last week, the GBP / USD pair briefly broke through the key resistance level of 1.3145 and rose to 1.3170. However, the pair failed to develop the upward dynamics above this resistance level.

A rise in new cases of COVID-19 infection in the UK, concerns about a lockdown in London, and the lack of progress in Brexit negotiations are putting pressure on the pound.

Note that on Thursday, August 6, a regular meeting of the Bank of England will take place.

The regulator is expected to adhere to cautious rhetoric due to the uncertainty of the prospects for the national economy, given the risks of a second wave of pandemic and a possible increase in the country's unemployment rate after the end of the employment preservation program on October 31.

Any hint of negative interest rates from the Bank of England will lead to a sharp downward reversal of the pound, analysts say.

GBP / USD hit five-month highs last week, but further sharp and rapid pullbacks have seriously undermined the upward momentum. Along with overbought conditions, this promises an early completion of the rally in the pound. If the GBP does not break above the $ 1.3170 level and consolidate above this level in the next few days, a break of the support at $ 1.2970 will mean that the current bullish phase has come to an end.

V Isakov
Analyst InstaForex
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