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GBP/USD forex forecast for 14.05.2020

May 14, 2020

May 14, 2020

Pound was hit by a trainDmitri Demidenko

The medicine may be more dangerous than the illness. This is not the

only problem of the GBP/USD

While the US continues boosting its fiscal stimulus, the UK weighs the risks that the medicine could do more harm than the illness. The UK took second place in the number of deaths from coronavirus. Therefore, the Treasury extended the UK scheme to pay wages of workers on leave because of coronavirus will be extended to late October. According to MUFG, this scheme already costs £49 billion, and its extension will increase the spending by another £30 billion. Taking into account the entire financial stimulus package, the budget deficit, according to the UK government, will increase from £55 billion to £337 billion. At best. At worst, it will be as much as £516 billion. The UK will need to raise taxes, which suggests the GDP recovery will be L-shaped. And this is not the only problem of the pound.

In the first quarter, the UK economy contracted by 5.8%, in the second quarter, according to the BoE forecast, it will drop by another 25%, which will be the worst drop over the past 300 years. The British Retail Consortium reported a 19.1% drop Y-o-Y in total sales in April. This is the biggest fall since it began its monthly index in 1995. According to Financial Times source familiar with the issue, Boris Johnson’s government (likely, under Donald Trump’s pressure) is going to lower tariffs on the imports of the US farm products, which will widen the UK’s current account deficit.

The problems of foreign trade, growth of the UK public debt, UK weak economy discourage the foreign investors from buying the UK securities, which increases the differential in the premiums for put and call options on the sterling to 220 basis points (the average value in 2020 is 150 basis points). This sets the [GBP/USD][1] bulls back.

Dynamics of the UK GDP

![LiteForex: GBP/USD forex forecast for 14.05.2020][2]

Source: Bloomberg

Dynamics of pound’s risk reversals

![LiteForex: GBP/USD forex forecast for 14.05.2020][3]

Source: Bloomberg

In addition to the problems of the economy, the political environment in the UK is also unfavorable amid the Brexit issues, which haven’t yet been settled. So, the pound’s drop looks natural. Until recently, the sterling was supported by the US stocks, however, the little chance of the V-shaped economic recovery in the USA resulted in the S&P 500 sell- offs, drawing investors’ focus back to the UK domestic problems.

Even the [GBP/USD][1] surge after the BoE meeting in May hasn’t increased the number of pound’s buyers. It was more like a” dead cat bounce”, a popular Forex pattern when bulls, being too weak, try to break the downtrend but fail. Yes, only two MPC members out of nine voted for the extension of the UK’s QE by £100 billion, however, Andrew Bailey and Ben Broadbent suggested that the BoE could implement additional easing measures.

Therefore, it will always catch up with you in the end, as the proverb says. In early May, the sterling looked too strong, which allowed the traders, who followed the [recommendations][4] to sell the [GBP/USD][1] from the levels of 1.235 and 1.229, to make profits. You can join successful Forex traders and boost up your deposit by going short on the pound using the LiteForex [convenient services][5].

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Ask me questions and comment below. I’ll be glad to answer your questions and give necessary explanations.

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Price chart of GBPUSD in real time mode

![Pound was hit by a train][8]

The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteForex. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC.

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  1. my.liteforex.com/trading/chart?symbol=GBPUSD&returnUrl=true
  2. cdn.liteforex.com/cache/uploads/blog_post/fundamental_analysis/gdp-uk-14-05-20.jpg?w=30&s=57a0582df974dba9b30fccd8fd57eb06
  3. cdn.liteforex.com/cache/uploads/blog_post/fundamental_analysis/risk-reversal-pound-14-05-20.jpg?w=30&s=0c8e940c045e1660f91d37b60d9639e7
  4. www.liteforex.com/blog/analysts-opinions/pound-is-not-lucky-in-may/
  5. my.liteforex.com/
  6. my.liteforex.com/?category=analysts-opinions&slug=pound-was-hit-by-a-train&openPopup=%2Fregistration%2Fpopup&utm_source=blog&utm_medium=article&utm_campaign=bonus
  7. my.liteforex.com/deposit/?category=analysts-opinions&slug=pound-was-hit-by-a-train&promo_code=BLOG&utm_source=blog&utm_medium=article&utm_campaign=bonus
  8. cdn.liteforex.com/cache/uploads/blog_post/fundamental_analysis/liteforex-blog-gbpusd-14-05-20.jpg?q=75&w=1000&s=d8dd54ff3021347ce904f76b20bcd5c2