The British currency, which previously worked hard not to decline, is on the rise. Experts note the beginning of an upward trend of the pound, which may develop into a stable dynamic growth.
Inspiring macro statistics largely contributes to the pound's strengthening of position. The recent PMI Markit data covering the UK manufacturing and services sector has shown a growing recovery. According to experts, this indicates an active recovery of Britain's economy after a fairly strict quarantine caused by COVID-19.
At the same time, the retail sector in the UK was the most active, inspiring economists. In July this year, this area showed an increase of 1.4% on an annualized basis. This is encouraging, since UK's retail trade has fallen sharply from March to June 2020. According to analysts, there has been a significant reversal of the negative trend, and now, sales volumes in the country are much higher compared last July 2019.
Last week turned out to be positive for the pound: it renewed its eight-month high, so the experts are determined to continue the upward trend. Many currency strategists, including analysts from the National Bank of Australia (NAB), are also optimistic about the pound. The Bank pays attention to the prospects of the British currency, but warns about the limited growth potential of the GBP relative to the USD.
The NAB believes that the "bulls" on the GBP/USD pair will have a hard time in the near future. A lot of strength and patience are necessary to overcome the difficulties, mainly related to Brexit. The further dynamics of the pound directly depends on the situation around the negotiations related to Britain's exit from the EU. At the moment, it is still in question, so it is difficult for the "bulls" of the GBP/USD pair to decide to further move to the next highs.
According to NAB analysts, the recent rally in the GBP/USD pair was caused by the dollar's prolonged weakening, while the pound was losing out to the Euro currency in the GBP/EUR pair. Thus, experts expect the US currency to consolidate in the near future, as this process may slow down the dollar's decline.
Based on their calculations, an important obstacle to the growth of the GBP/USD pair will be the price range of 1.3200 - 1.3300. However, we still have a long way to go since the pair is now trading in a lower range. On Tuesday morning, August 25, the indicated pair was moving around 1.3094-1.3095. NAB is confident that it will reach 1.3100 in the third quarter of 2020. The bank emphasizes that this goal is very close.
In addition, there are two key factors that will become the next step for the GBP/USD pair. These include progress in negotiations to withdraw the UK from the European Union as well as the dollar's continuation of the downward trend. Thanks to this, the pound can rise to 1.3600 in the fourth quarter of 2020, which will lead to 1.4000 in the first quarter of 2021. According to NAB, the GBP/USD pair will be able to reach 1.4400 next year.
Many experts believe that pound's further dynamics will depend on the recovery or falling of the British economy. Several analysts note some of its slowdown compared to the economies of the Euro zone. According to the calculations of Citi strategists, the United Kingdom will lag behind most developed countries next year. Experts say the shift in focus from monetary stimulus to economic recovery indicators has a negative impact on the dynamics of the GBP. Nevertheless, the idea of a rise, which is important for the pound, is slowly being carried out.
