GBP: under pressure

GBP: under pressure

2020-05-12 • Updated

Let’s look at the factors that move the British pound and what restrictions it can meet on its way.

Market sensitivity

First of all, GBP is quite sensitive to the market sentiment. This week the British pound has dropped as investors worry about the second wave of coronavirus. Those concerns were based on a small outbreak of covid-19 in Wuhan. Also, a poor data from Germany proved that easing lockdowns is quite risky as it has leaded to the reproduction of new coronavirus cases there.

Stocks and GBP are in one boat

The British pound always comes along with the stock market as they both depend on a risk appetite. So, when stocks decline, investors turn away from pound to the safe-haven US dollar. There is a tight positive correlation in the price dynamic between GBP and S&P 500. According to the ING Bank, the S&P 500 price will contract by 20% this year. So, we can assume that GBP will move in the same direction in the long term. However, any weaknesses in stock markets are short-lived and often followed by fresh buying. It’s better to continue watching changes in the stock market to get a hint.

EU and UK

Another aspect to consider when you trade GBP is the result of trade negotiations between the EU and UK. Both sides still have some disagreements, when it remains nearly 8 weeks till the end of their deadline to make a deal. These worries about the failure to come to a common decision may limit the upside potential of pound or even push it down.

Upcoming data from UK

The GDP release will take place tomorrow on April 13 at 9:00 MT time. It will reveal how deep was the damage from the coronavirus. Analysts are expecting a contraction of -7%. Investors are now adjusting “to the prospect of a long, slow, economic re-opening,” said experts.

Brief technical outlook

After strong fluctuations during February and March EUR/GBP stabilized and entered a horizontal corridor in April. Now it’s trading in a horizontal corridor. Look for the break out at 0.8845, when it may continue increasing further. Support lines are at 0.869 and 0.8645.

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