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02.09.2020 03:08 PM
Pound's future prospect: either a sharp rise or fall

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According to analysts, in the medium and long term, the pound sterling may surprise the market with either rapid rise or fall. In addition, experts stressed that the pound may face a hard time in the near future.

The pound may face serious volatility due to the difficult economic and political situation. One of the main risk factors for the pound is the current position of the Bank of England. Ahead of the meeting of the regulator, which will take place on Wednesday, September 2, the sterling began to rapidly lose its positions. It traded in the 1.3376-1.3377 range on Wednesday morning and then, later on, went in a downward spiral. By afternoon, the GBP / USD pair was cruising around 1.3352-1.3353, responsive to the alarming market sentiment.

Experts express different opinions on further actions of the Bank of England. Currency strategists at Danske Bank are confident that the regulator will keep the rate at the previous level of 0.1%, but may again return to the issue of negative rates. Analysts do not exclude that in the fall the central bank will increase the asset purchase program by another 50-100 billion pounds.

Note that this year, the Bank of England left interest rates at extremely low values and increased the purchase of government bonds. These measures were necessary to support the national economy, which is seriously affected by the COVID-19 pandemic, and to address the problems with the Brexit.

The weak economic activity in the UK and a large-scale current account deficit in the country are some of the other risk factors for the pound sterling. Against this background, investor interest in GBP is declining, which does not add optimism to the said currency. At the beginning of autumn, the Brexit topic becomes relevant for the British government, the deadline for which is December 31, 2020.

According to experts, in the second half of this year, the sterling may resume its decline if the UK and the European Union do not sign a trade agreement. At the same time, analysts emphasize that negative news has already been taken into account in the GBP price since the Brexit referendum. However, this will not prevent the pound from hitting the bottom, since Brexit without an agreement will still shock the British economy, despite the market's optimistic sentiment.

The current situation keeps the pound in suspense, and the economy of the United Kingdom is in a state of uncertainty. This has an extremely negative effect on the pace of its recovery and the investment climate in the country, experts summarize.

Larisa Kolesnikova,
Analytical expert of InstaForex
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