The pound sterling rose in the early London session on Thursday on the back of the weakening of the dollar. The greenback lost momentum due to the dovish stance of the Federal Reserve. During the Asian session, the pound/dollar pair broke through the resistance level of 1.3900 and consolidated above the high of $1.3979 for the first time in nine weeks. So, the bullish scenario looks more likely. The pair may advance to the target of 1.4020. The euro/pound pair also rose by about 0.2% to 86.88.
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Market participants are particularly concerned about political events in the UK. Recently there have been rumors that UK Prime Minister Boris Johnson in October, before the introduction of the third nationwide quarantine, angrily uttered he 'would rather let bodies pile high' than impose the third lockdown!' Earlier, Johnson was accused of using funds from party donors to renovate his office apartment. In addition, the prime minister is suspected of tax breaks to the billionaire in exchange for the supply of ALV. As we can see, Boris Johnson is facing terrible accusations that are sure to spoil his reparation. According to polls, the rating of the Prime Minister and the entire Conservative Party has significantly decreased.
All these political problems in the United Kingdom limit the growth of the British currency. This is despite the fact that the US dollar has fallen significantly. The GBP/USD pair has almost reached the level of 1.4000
The situation is aggravated by is the upcoming regional elections in the UK, which are scheduled for May 6. The pound sterling is also unable to rally in anticipation of the elections. The vote in Scotland will also take place on the same day. Experts reckon that power will remain in the hands of the nationalists, who have been calling for a second referendum on independence from the United Kingdom for quite some time. In February, the Scottish newspaper, The National, stated that the government was going to determine the specific timing and questions for such a vote. Earlier this year, the first female Scottish Minister, Nicola Sturgeon, said on Twitter that Scotland would soon return to the European Union but as an independent state.
Separatist sentiment is also noticed in other parts of the country, particularly in Northern Ireland. In 2019, the BMG agency conducted a survey for The Independent. According to the results, about half of the UK residents believe that Scotland and Northern Ireland have every right to hold a referendum on their independence after the country leaves the European Union. The former Minister for Northern Ireland, Lord Peter Hain, said that Brexit would push other parts of the kingdom to break up the UK.
The current political turmoil in the UK retrains the rally of the British currency in the short term. There is a high risk of a moderate fall in the pound sterling if the Scottish nationalists win the upcoming elections. However, according to Callum Pickering, a senior economist at Berenberg, the weakness of the pound sterling is expected to be temporary. After the election, the pound sterling is likely to advance. Berenberg predicts that by the end of this year, the British currency will reach the level of $1.47. The expected steady recovery of the British economy will definitely push the pound sterling to a long-awaited rally.
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