The British currency was again at the epicenter of passions around the possible introduction of a negative rate. On this issue, the British authorities are in a state of "both wanting and pricking": On the one hand, they expect to improve the state of the national economy after this decision is made, and on the other – they are afraid of additional negativity.
Earlier, spears were already breaking around the potential introduction of a zero rate. Opponents of this decision presented their arguments, and supporters insisted on the positive impact of this initiative. At the moment, this issue is still hanging in the air, but the appropriate decision will be made sooner or later.
MUFG experts and a number of other analysts are skeptical about the possible positive impact of the negative rate. They doubt it will help the pound rally relative to the dollar. At the moment, the GBP / USD pair is in a relatively stable equilibrium. On Tuesday, August 11, the pair traded around the level of 1.3113, however, bearish mood prevails today. The trend reversal occurs almost unnoticeably, heading towards a steady decline step by step. On Wednesday, August 12, the GBP/USD pair is running in the range of 1.3030-1.3031, gradually losing ground.
According to analysts' observations, the GBP/USD pair has significantly risen in price in the past month, breaking the psychologically important resistance level of 1.3145. At the moment, the pair showed a sudden rise to 1.3170, but further movement stalled. In August, the GBP/USD pair was unable to continue the upward trend. The strengthening of the British currency and the growth of the GBP/USD pair in the near future were questionable.
The problem of the potential introduction of zero rates in the UK may become a threat for the country's economy. Experts fear that if negative rates are adopted, the pound will be seriously affected. However, we should not expect a decline in GBP now: the Bank of England kept interest rates at the same level last week, focusing on relatively optimistic economic forecasts. The data on the British labor market, which turned out to be better than expected, contributed to the current positive. As a reminder, the overall unemployment rate in the country did not exceed 3.9%, which provided significant support to the national currency.
Analysts do not exclude that the Bank of England may increase the quantitative easing (QE) program, while maintaining a soft monetary policy by the end of 2020. This is facilitated by the current uncertainty caused by the COVID-19 coronavirus pandemic and Brexit issues. According to experts, the expansion of the QE program may take place at the November meeting of the regulator on monetary policy.
The current situation, burdened by the possible introduction of negative rates, has a negative impact on the dynamics of the pound. Additional pressure for the pound is a number of factors, the main of which are the risk of a "hard" Brexit, leading to a slowdown in the national economy, and the negative consequences of COVID-19. At the same time, we should not treat the pound as a helpless currency: it knows how to "keep its face" even in a knowingly losing situation.
According to analysts, the current situation may be in favor of the GBP. At the moment, sterling supports the general weakening of the US currency, which allows it not only to stay afloat, but also to conquer new peaks. At the same time, experts admit another decline in the pound, which is located between the Scylla of economic instability and the Charybdis of accepting negative rates, which can be destructive.