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Pound’s sharp growth turned to a new decline

Relevance up to 06:00 2022-01-20 UTC+00

The pound, stagnating in anticipation of new macro data, sharply rose at the beginning of the new week. However, this growth did not last long. It plunged the next day, disappointing the markets once again.

On Monday, the British currency traded confidently in the “green” zone, showing noticeable gains. It reached a two-and-a-half-month during the day high as investors expect the Bank of England to raise rates in February. The expectation of new macroeconomic data from the UK labor market also contributed to the strengthening of the pound sterling. According to preliminary calculations, unemployment in the country remained the same from September to November 2021, not exceeding 4.2%. It should be noted that these are the figures recorded from August to October 2021.

On Wednesday, market participants are waiting for the data on UK inflation. According to preliminary forecasts, it accelerated from the previous 5.1% to 5.2% over the past year. This adds tension to the nervousness of the pound and raises concerns about the further recovery of the British economy. Currency strategists at ING believe that a new portion of macro statistics will support the pound’s strengthening. A day earlier, the GBP/USD pair reached the level of 1.3679, rising from the previous level of 1.3673.

However, the pound’s current growth is disappearing, as market participants hedge rates before the Bank of England’s meeting. The British currency is tightening the downward cycle, leaving the previous highs. On Tuesday morning, the GBP/USD pair lost its position, hovering around the level of 1.3639 and trying to get out of the current range, but it failed.

Earlier this week, the GBP/USD pair started trading sideways as investors wait for the next market catalyst. The pound remained in the positive zone for four weeks in a row, but it is difficult for it to maintain an appropriate level. After a long rally that lasted almost a month, the pound lost its momentum and slowed down its growth. It is now in a downward trend, but experts consider this a short-term phenomenon.

Experts believe that the pound’s corrective pullback will continue in the near future amid the reassessment of the Fed’s hawkish mood. At the same time, the interest of market players in the British currency is fading, as the Fed’s tough rhetoric is embedded in the quotes of the GBP/USD pair.

The political factor is also important for the pound. Market participants watching the political situation in the UK are concerned about the decline in public confidence in Prime Minister Boris Johnson. The backlog of the Conservative Party, headed by B. Johnson, from the Labor Party, also adds pressure. The holding of early elections in the country, which were reported earlier, is also in question.

The current situation keeps the pound in suspense. According to analysts, increased political tension does not allow the GBP to attract buyers. Moreover, the GBP/USD pair is significantly affected by the dynamics of the US dollar in the short-term planning range. Nevertheless, analysts are confident that the pound will be able to compete with the US dollar this year. It is possible that the British currency will be stronger than other currencies of developed countries, which is facilitated by the strong actions of the Bank of England in relation to the existing monetary policy.

The regulator is ready for changes, namely raising the key rate, and this is taken into account by the market. Experts warn that the UK will manage to overtake the US in terms of interest rates in the next three years. The implementation of such a scenario will ensure the inflow of funds into the GBP/USD pair and into the national currency.

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