Last week we observed an unprecedented drop in the pound to the 1.03 level, after which the rates went up. This raises a lot of questions: - What is really going on with pound and what will happen tomorrow? Will the parity with the dollar be achieved, or has an absolute minimum been reached, after which we will have a trend reversal and the pound's recovery to its usual level? We will look for answers in this review.
Last week, the collapse of the pound was caused by a plan to reduce taxes by the new government and cover the budget deficit through new borrowing. This led to a sell-off of the pound and panic on the market. The Bank of England had to intervene and make a currency intervention. The government also had to adjust its tax plans. Thus, we saw wishes of the regulator in keeping the exchange rate at a higher level than was achieved. Of course, the Bank of England will continue to actively raise the rate to further strengthen the pound. The question is, will this be enough in the confrontation with a stronger dollar?
Recent macroeconomic reports indicate a deterioration in the economic situation, but plan to stimulate the economy with lower taxes took a negative reaction. Meanwhile, inflation is accelerating, and Fitch is downgrading the UK. The US economy is in a better position, although it is also at risk due to inflation. So far, it is possible to maintain interest to the dollar at a high level due to the growth of rates, although this will not continue indefinitely, and high rates also have disadvantages and risks for the economy.
Next week will be even more volatile for GBP/USD. A large number of macroeconomic reports are expected, including UK GDP, industrial production, trade balance, unemployment, and in the US - an inflation report, the publication of Fed minutes, industrial production volumes.
In the current situation, we believe that the trend reversal will not take place, since there will not be enough incentives from the British economy for this, but the dollar may well become even stronger. Most technical analysis tools indicate the effectiveness of the deals to SELL, and after a significant deviation from the minimum, we have a good range for making a profit on sales of the pound. Therefore, our choice is to sell the pound today and if you are not afraid of high volatility, then this is the best choice for you too.
