A new week began for the pound with attempts to grow. It is trying to maintain its confidence, painfully reacting to another fall caused by economic distortions against the background of a powerful outbreak of the COVID-19 pandemic. Experts believe that in the near future, the pound will not avoid losses.
On Monday, March 30, the sterling began to decline against the dollar. According to analysts, the greenback once again proved to be a safe asset, which attracted investors who are nervous about the COVID-19 pandemic. Against this background, the economic prospects of the UK sharply declined, as the country's credit ratings went negative. Recall that the largest credit rating agency, Fitch Rating, downgraded the rating of the United Kingdom from AA to AA- due to the influence of the coronavirus on government funding and economic activity. Fitch Rating experts also brought down the sovereign debt rating of the UK. They explained their decision by the upcoming increase in the country's debt level due to increased government spending. Note that the increase in government spending is necessary to compensate for an almost complete economic halt during the coronavirus pandemic.
In this situation, the pound was under the pressure of a number of negative circumstances, struggling to resist them. However, economists said that the efforts of the pound were not enough to lift itself. The imbalance of the pound is influenced by forced government measures taken to curb the potential collapse of the economy. Recall that the British authorities ordered to suspend the work of most enterprises in order to block the spread of coronavirus, and Rishi Sunak, the country's finance minister, announced the introduction of measures aimed at preventing a surge in unemployment.
The main step of the British authorities was the mandatory payment of 80% of the salary to employees who had to be fired temporarily. According to analysts, the Bank of England has joined these incentive measures. They also expanded the bond-buying program by an impressive 200 billion pounds, while reducing the interest rate to an extremely low 0.1%.
As a result, the pound, having experienced a significant decline, again tried to squeeze the dollar. These attempts did not lead to anything but slightly cheered up the pound. Negative macro statistics on the UK added fuel to the fire, which, according to experts, still does not reflect the full economic picture in the country. According to recent reports, in March, the index of business sentiment in the British economy fell to 92.0 points from 95.5 points recorded in February. Experts suggest a stronger decline than indicated in the statistics. They are sure that this information does not take into account the entire March period when the British economy stopped due to the pandemic. Most experts expect the UK GDP to fall by 1.5% in the first quarter of 2020, and in the second by a record 10% to 13%.
At the beginning of this week, the sterling fell 0.6% to $1.2360, falling from the maximum values recorded in mid-March 2020. Previously, the GBP / USD pair was actively rising amid weakening of the greenback, which fell against the backdrop of stimulus measures taken by the US authorities and disappointing US economic data. However, experts are confident that now the situation may change in favor of the pound.
Morning of March 31, the pair began with a slight increase, rising from 1.2311 to 1.2315. However, later the tandem slid down, going to the levels of 1.2298–1.2303. Yesterday's sudden collapse of the pound puzzled traders. The desire to buy a pound has decreased significantly, but investors are in no hurry to sell it. At the same time, experts consider the GBP / USD pair to be suitable for sales and recommend considering sterling as an object of sale.
Experts added that in case of a break of the support level of 1.2330, the pressure on the GBP / USD pair will increase. As a result, the tandem may go into the area of lows of 1.2150 and 1.1970. However, in case of overcoming the resistance level of 1.2490, one can count on reaching a maximum of 1.2690, analysts summarize.
The current situation is complicated by the fact that the pace of the leading economies of the world, including Great Brittain, sets the powerful spread of the COVID-19 pandemic. Fear for their savings increases the demand for defensive assets, primarily for the greenback. In a similar situation, the pound loses to the greenback, experts say. This Friday, April 3, the release of statistical data on the US labor market is expected, and if it turns out to be extremely negative, the USD will get a chance to strengthen its position. If this scenario is realized, further GBP sales are possible, experts are sure. In favor of sellers of British currency, there are reports of self-isolation of Boris Johnson, the British prime minister who went on quarantine after testing positive for COVID-19.
