The British currency is in disarray for losing its current benchmarks and not finding new ones. Analysts said that it is difficult for the pound to determine the direction of further dynamics. In addition, the British pound has to withstand pressure from the Bank of England and Brussels.
The current weakening of the sterling is due to the expectation of a rate cut by the Bank of England, as well as tensions due to the upcoming negotiations between London and Brussels. Markets expect a productive dialogue between the UK and the European Union in order to calculate the likelihood of profitable trade deals. According to experts, the future of Britain will depend on the transactions of the prospects for economic growth and the dynamics of the British currency.
Currently, the European Union is ready to support the UK by only subordinating it to EU standards in regulatory matters. Following European standards is also expected in relation to mutually beneficial trade. The United Kingdom will have to make concessions to the European Union on trade issues, otherwise, it will be difficult to achieve a balance, experts emphasized.
Earlier, the office of the British Prime Minister, Boris Johnson offered Brussels two options that were rejected. The first one is by providing an almost duty-free trade, with the exception of some goods and services. While the second one suggested that both parties choose which sectors of the economy they agree on separately. The remaining areas of the British economy will be governed by the rules of the World Trade Organization (WTO). However, the European Union did not agree with any of these options.
According to preliminary estimates, during the upcoming negotiations, the parties will not want to make mutual concessions. There was tension with the parties and their productivity is in question. Many analysts are confident that the UK will not be able to conclude a free trade agreement with the EU by the end of this year. In such a situation, the pound will not be envied: it expects a series of ups and downs, reflecting the instability of political upheavals.
Another traumatic factor for sterling, experts consider a possible rate cut by the Bank of England. At the moment, the market has captured a discussion of the prospects for the country's monetary policy. A number of investors believe that in connection with the global spread of the coronavirus, now COVID-19, central banks in the world will begin to weaken monetary policy in order to protect their economies and the Bank of England is no exception. At the same time, experts argue that the role of the interest rate is not very important right now since the next meeting of the regulator will take place a month later which is on March 26, to be exact. At this point, the situation in the United Kingdom may change dramatically, and those issues that seemed of paramount importance will recede into the background.
Nevertheless, the British currency is trying to stay close to the maximum values of February 2020, counting on an increase in government spending by Rishi Sunak, the country's new Minister of Finance. The market expects that with the unveiling of the budget of the newly formed government, scheduled for March 11, government spending will increase. If this scenario is achieved, the British economy will receive additional incentives that will become a springboard for the pound.
Sterling is currently experiencing powerful volatility. After falling on Wednesday, February 26th, caused by the expectation of an upcoming interest rate cut by the Bank of England, the GBP / USD pair broke the 1.2970 bar and quickly slipped to the support level of 1.2930. According to analysts, a breakdown of this level can reverse the upward trend of the pound that was formed last Thursday, February 20.
As a result, yesterday, the GBP / USD pair rose slightly from the level of 1.2930, reaching 1.2942, but could not further develop the upward movement.
Morning of February 27, the tandem slid to 1.2919–1.2920, and tried not to slide further. However, at times the decline continued, and the pair had to make a lot of effort so as not to grope the bottom.
At the moment, the tandem rose to 1.2936–1.29937, but could not stay within these limits. Now the GBP / USD pair is again running in the low range, trying to stay afloat.
Experts believe that in the near future, the pound will gain an advantage and begin to grow, thanks to stimulating measures from the side of Johnson's cabinet. Also, analysts are sure that the long-awaited balance of the British currency will bring a reduction in risks regarding Brexit. However, experts added that at the moment, sterling is under pressure from the upcoming negotiations and a possible reduction in rates, so it's still far from being calm.
