The main thing is to exude confidence, and then, you see, the opponents will get scared and throw away all the cards. The personification of the confidence of the British pound is Prime Minister Boris Johnson, who shows that Brexit is under his control. The EU makes it clear that it is ready to make concessions in the field of fisheries, the system of state subsidies, and the rule of the European Court of Justice. Johnson pauses, and the Europeans begin to wonder why London doesn't curtsy. It seems that the British Prime Minister has iron nerves, and sterling feels this well.
It would seem that Brexit, disillusionment with the recovery of the Foggy Albion economy, the growing likelihood of QE expansion, and the introduction of negative rates by the Bank of England should have sunk the pound. Indeed, after a murderous April, GDP grew by a modest 1.8% in May, with forecasts of more than 5%. Where is the V-shaped economic recovery that Andy Haldane is talking about? The chief economist says that in the second quarter, the gross domestic product will sink by 20% rather than 27%, as predicted by the BoE. Unfortunately, the release of data on the May indicator seriously undermined the chances of such a scenario.
Andrew Bailey doubts that the current recovery in the UK economy is sustainable, and believes that the return of GDP to the trend will depend on factors that are difficult to predict. None of the three scenarios in the estimates of the Office for Budget responsibility suggests that by the end of 2020, the gross domestic product will sink by less than 10%. The basic version provides that the national debt will grow from 89% to 104% of GDP in the current financial year.
Forecasts for Britain's GDP
Such estimates allow the derivatives market to maintain expectations of negative BoE rates in 2021, and Bloomberg experts to forecast an increase in the scale of QE. The picture for sterling is pretty bleak, but it has Boris Johnson! The Prime Minister's words that the country will be able to return to normal life in November, at least by Christmas, cause optimism and are one of the important drivers of the growth of GBP/USD.
When forecasts are sad, the release of stronger statistics causes the currency to strengthen. Especially now, when the main investment idea in the market is a divergence in economic growth. In this regard, the releases of data on retail sales and business activity in Britain can be a signal for purchases of sterling. If, of course, they do not disappoint.
Still, we must admit that without the weakness of the US dollar and the strength of the euro, the rally of the analyzed pair would hardly have been possible. Investors fear that due to the complex epidemiological situation in the United States, the future macro statistics will be gloomy. Faith in the approval of the EU's fiscal stimulus project pushes up the quotes of both the single European currency and the pound.
Technically, the "Expanding Wedge" pattern continues to be implemented on the daily GBP/USD chart. A break in the resistance at 1.2645 and 1.267 will open the way for the bulls to the north and allow them to form longs with a target of 1.3.
GBP/USD, the daily chart