20.11.202015:53 GBPUSD: What will be the catalyst for the collapse of the British pound? The UK public sector has slowed down with the growth of borrowing, but this phenomenon is temporary

The British pound hovered in a narrow side channel, as versatile fundamental statistics did not provide clear guidance for the market. Neither the risk of a Brexit deal breakdown after the trade agreement negotiations stopped, nor bad statistics on consumer sentiment led to a decline in the GBPUSD pair. Does this mean that traders believe in a more rosy Brexit scenario, or will the accumulated effect of negative news eventually win out and the pound will collapse against the US dollar? We will find out about this in the near future.

Exchange Rates 20.11.2020 analysis

Perhaps the catalyst for a new fall in the pound will be the expected changes in the monetary policy of the Bank of England, which the Governor of the Bank of England, Andrew Bailey, tried to keep silent this week during his speeches. The British regulator has somehow stopped loudly proclaiming the need to introduce negative interest rates recently. We will also decide to wait until the specifics of the trade agreement are determined since this is what the Central Bank will continue to build on. No deal is 99% likely to force the Bank of England to resort to negative interest rates early next year.

Let me remind you that the final week of negotiations on a trade agreement between the UK and the EU was the news that someone among the participants of the meeting was infected with the coronavirus. It is clear that in the end, the further meeting was stopped and the decision on the agreement again remained in limbo.

Meanwhile, fundamental statistics on the UK economy speak for themselves. Today, a report from GfK on the UK consumer confidence index was released, which declined in November compared to October. The main reason for the decline in the index was another partial lockdown of the economy, which affected consumer sentiment and confidence. The deterioration in the British assessment of their finances was one of the main reasons for the decline in this indicator. According to a report by research company GfK, in November 2020, the index fell to -33 points against -31 points a month earlier. The decline is observed for the second month in a row. The data completely coincided with the forecasts of economists.

Data on retail sales in the UK also did not revive the market, although there was a slight increase in October. However, this did not matter at all, as traders are now more concerned about the question of how much they will be reduced again in November this year, after the introduction of the next lockdown. Most of the growth in UK retail sales in October was driven by stronger-than-expected pent-up demand. Although there is still hope that this report will support the economy's growth rate in the 4th quarter of this year, sales growth was recorded only until the lockdown was introduced, and they will almost certainly decline again in November.

According to the National Bureau of Statistics, sales increased by 1.2% in October 2020 compared to September, while economists had expected sales to decline by 0.4%. Compared to October last year, sales increased by 5.8%, with forecast growth of 4.1%.

Exchange Rates 20.11.2020 analysis

The deterioration of the state finances of the UK was not surprising. Today's report that public sector borrowing in the UK in October was less than expected. According to the data, public sector borrowing in October 2020 amounted to 22.3 billion pounds compared to 36.1 billion pounds in September. Economists had expected them to reach 35.5 billion pounds in October.

From a technical point of view, nothing has changed. Buyers of the pound are targeting a breakout of the resistance of 1.3310. Only a breakdown of this range will open a direct road to the highs of 1.3380 and 1.3470. It will be possible to talk about the return of pressure on the trading instrument only after a decline to the level of 1.3235, which buyers are now trying to save with all their might. In case of a breakout, more active actions of the bears will quickly push the pound to the support area of 1.3165, and the base of the 31st figure will act as a longer-term goal.

*The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade.

Viele Grüße,
Analytiker: Eder Anderson
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