The GBP/USD pair holds its position within the 22nd figure. At the end of last week, the bears of this currency pair made another attempt to consolidate below the resistance level of 1.2180 (Tenkan-sen line on the daily chart), but they lost control of the pair on Monday, even despite the general strengthening of the US currency. Today, when the dollar itself was under pressure, the GBP/USD pair showed character and headed towards the middle of the 22nd figure. If we consider the short-term period, the pair's prospects are more or less clear: the pound takes advantage of the dollar's weakness, which in turn, is becoming cheaper due to a decline in anti-risk sentiment in the market. However, if we take into account at least the medium-term time period, then the prospects for this pair are very vague - and this applies to both the upward and downward trends.
Let me remind you that the British currency has become cheaper over the past two weeks for various reasons, which, however, are connected with each other. So, in mid-May, extremely weak macroeconomic reports for April were published. Almost all indicators came out in the "negative zone", significantly not reaching very pessimistic forecasts. Moreover, macro statistics was full of anti-records - many key indicators declined to multi-year lows, and some of them reached historical lows. For example, Britain's GDP fell by 2% in quarterly terms and 1.6% in annual terms. And although experts expected a worse result (-2.6% q / q -2.1% y / y), this is the maximum drop over the past 11 years. Consumer spending declined by 1.7% relative to the previous quarter. The last time such a trend was observed at the end of 2008. But the indicator of industrial production collapsed by 4.2% m / m which is the maximum decline since January 1971.
A little later, data on inflation growth were published, which was similarly disappointing: the general consumer price index in April fell to -0.2% on a monthly basis. In annual terms, a downward trend was also recorded: the indicator fell to 0.8% - this is the weakest growth rate in many years. Core inflation was also disappointing - the core consumer price index reached 1.4%, that is, at a three-year low. A weak result was also demonstrated by the retail price index both in annual and monthly terms.
The reaction of the Bank of England did not wait long: during the parliamentary hearings on the prospects of monetary policy, Andrew Bailey said that the Central Bank is now "actively considering the introduction of a negative rate." He added that economists are now studying similar experiences of other central banks, not excluding the possibility that this scenario could be implemented in the UK. Such a statement was the last problem for traders, after which the pound finally lost ground. Indeed, the head of the English regulator ruled out a similar scenario just two months ago, saying that a negative rate would negatively affect the banking sector in Britain. Such a sharp reversal exerted strong pressure on the GBP/USD pair, after which the pair updated a 2-month low, reaching 1.2070.
However, contrary to the forecasts of some experts, the bears could not go below the key support level of 1.2000 and could not even approach the base of the 20th figure. Firstly, the market "remembered" that the head of the Bank of England did not have the authority to individually lower or raise the rate. Meanwhile, the remaining members of the Committee are not in a hurry to support the initiative of their "boss", especially since he voiced this idea in a hypothetical context. In addition, the British press doubt that banks will charge customers money for depositing funds. The rate of return on deposits in the national financial system is already minimal (now the average deposit rate does not exceed 0.1% per annum), therefore, if the rate is reduced to the negative area, the banking sector will most likely refuse to pay interest on deposits, in fact, equating the placement of money in accounts with storage in a bank cell. As for loans, banks will most likely significantly tighten requirements for borrowers, fearing an increase in the share of "bad" debts, that is, getting approval on a loan application will become much more difficult.
And these are just a few examples of side effects from introducing a negative rate. Therefore, experts for the most part doubt that this step will be the next decision of the English regulator. Analysts do not rule out such a scenario, but attribute it to extraordinary measures - for example, if Great Britain is forced to quarantine again in connection with the second wave of the epidemic. Nevertheless, if the British economy shows signs of recovery amid quarantine, the Bank of England is unlikely to dare to introduce a negative rate.
Thus, the GBP/USD pair retains the potential for its further corrective growth to the resistance level of 1.2310 (the upper border of the Kumo cloud, which coincides with the middle line of the Bollinger Bands indicator on the daily chart). But it is worth noting here that a decline in concern about the introduction of a negative rate only eased the pressure on the pound, while the pair's growth is possible only in case of further devaluation of the US currency, amid a decline in anti-risk sentiment in the market.
