The prospect of the absence of negative rates in the UK, in theory, was supposed to cause a pound rally, but this did not happen. Let's try to figure out why and what positions on the pound are most profitable now.
Traders were enthusiastic about the decision of the Bank of England to keep the rate at the lowest level of 0.1%. But market players were a little alarmed by the position of one of the senior members of the English regulator. Andy Haldane voted to keep the target level of asset purchases unchanged. In his opinion, the current policy of the BoE favors economic recovery and the return of inflation to the 2% target.
Nevertheless, the pound lost ground. The continuation of the downward trend, including in relation to the dollar, market players associate with continuing concern about Brexit. Pressure on sterling is also exerted by the BoE's penchant for pursuing a soft policy if the situation requires it, and the situation may require it, since the prospects for inflation and the economy remain vague.
The GBP/USD pair ended in negative territory last week. Today, the course is slightly higher. Sterling gained 0.8% against the dollar and reached a local high at 1.2450 in the US session. However, this did not happen at all because of the attractiveness of the pound, but because of the US dollar's weakness.
GBP/USD
The dollar index was steadily losing value at evening trading, the quote was prepared to go below 97 points, threatening an upward trend in the US currency. Recently, the dollar has been extremely sensitive to the growth of stock indices, which have been increasing today, despite the alarming situation with coronavirus in America and in the whole world. However, investors are a little nervous because of the risks associated with the second wave of the pandemic, which means the dollar has a chance of recovery. This, in turn, will put pressure on the pound.
As for the factors that come specifically from the pound, there is little positive. Most strategists predict a decline in sterling due to the threat of Brexit without agreement. In addition, the measures taken by the BoE may not be enough to compensate for the consequences of the coronavirus pandemic. And if you allow a new outbreak in the UK, how did this happen in other countries? The answer is obvious.
The fundamental background does not yet create the prerequisites for long positions on the GBP/USD pair. Despite today's rise, the pair is trading below a key resistance level of 1.2590.
Meanwhile, volatility in this pair may increase on Tuesday. The publication of business activity indexes is expected. The growth of indicators will support the GBP/USD rate.
The material has been provided by InstaForex Company - www.instaforex.com