Disappointing statistics on US retail sales have become another nail in the coffin of the US dollar. The indicator fell short of the forecasts of Reuters experts, which in the conditions of increased sensitivity of the main world currencies to macro statistics, contributed to another weekly closing of the USD index in the red zone. According to BofA Merrill Lynch surveys, "American'' is actively sold by asset managers, 36% of whom consider this strategy the best this year. When the dollar loses positions, the "bulls'' for GBP/USD forget about the problems of the Foggy Albion.
But the difficulties of the country and sterling is enough. In the second quarter, GDP sank by more than 20%, twice as much as the US or Eurozone economies. Britain started using lockdown a little later and got out of it 2-3 weeks later than the rest of Europe. The risks of a no-deal Brexit have not disappeared, and the recovery in gross domestic product is sure to be difficult. What is the matter, why is the pound growing so confidently?
In my opinion, the main reason is the weak dollar, however, it is not the only one. After a meeting with British Prime Minister Boris Johnson, his colleague from Ireland, Michael Martin, said that Johnson has a sincere desire to make a deal with the EU. He would not want to exacerbate the recession with a no-deal Brexit. There is a "landing zone" in the negotiations between Brussels and London, and both sides want to complete the deal by October. Good news of a political nature is positive for sterling, especially since its opponent in the face of the US dollar is experiencing difficulties due to the elections. No one knows what the initiative of Donald Trump to cancel the postal vote will lead to, and how soon the results of this vote will be known?
As for the economy, investors use investment ideas based on forecasts of future events, and leave the past alone as a winning factor. In this regard, strong statistics on inflation, retail sales and business activity can provide the "bulls" for GBP/USD with all possible help. It will finally dissuade the market from the desire of the Bank of England to introduce negative interest rates.
Dynamics of business activity and GDP in Britain
The US dollar's positions continue to look vulnerable. Retail sales can be the beginning of the end. The deterioration of the epidemiological situation in the States in mid-summer is fraught with a series of disappointing macroeconomic reports, which will hit the dollar. In the run-up to the election, Donald Trump's attempt to make up for lost time and show harshness towards official Beijing and Chinese companies looks belated and hurts the USD index. The pound's opponent is barely on its feet, why shouldn't GBP/USD continue its rally?
There are risks, of course. Gloomy data on inflation, retail sales and business activity in the Foggy Albion can return rumors of a fall in the repo rate below zero. The second wave of COVID-19 in the Old World will undermine confidence not only in the euro, but also in other European currencies. However, while all this has not happened, there is an opportunity to buy the pound on the breakout of resistance at 1.314 and 1.32.
GBP/USD, the daily chart