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GBP/USD forex forecast for 18.06.2020

June 18, 2020

June 18, 2020

Pound is playing with the shadowsDmitri Demidenko

GBP plays a secondary role depending on the U.S. stock indexes

The world’s major currencies competing with the US dollar have been playing the second role for a long time. Investors often ignore fundamental data, being more interested in the trends of the US stock indexes, which mostly affects the foreign exchange rates now. It is also acute for the pound, which, after the referendum on the UK membership in the EU in 2016, has often ignored the reports on the UK GDP, inflation, or unemployment. So, what’s the difference whether it is Brexit or the pandemic?

The longer the COVID-19 pandemic continues, the more primitive trading strategies become. The Forex traders do not bother about macroeconomic statistics. They just sell the greenback against a basket of major currencies when the S&P 500 is rising and buy when the US stock market is going down. Investors do not yet care about the divergence in the economic expansion or monetary policies of the global central banks. These key forex drivers will still be important, but a little later, when the epidemic is over. That is why it looks natural that the GBP traders have not been much scared by the UK’s poor domestic data. The UK inflation rate was down to 0.5% Y-o-Y in May, which is the worst drop since 2016. The GDP showed the worst drop in the February-April period, which is 3.5 deeper than that in the worst quarter during the previous recession. The UK jobless claims soared by nearly 1.5 million. All of this, however, doesn’t much affect the GDP value.

Dynamics of UK GDP

![LiteForex: GBP/USD forex forecast for 18.06.2020][1]

Source: Bloomberg.

Forecasts for UK GDP

![LiteForex: GBP/USD forex forecast for 18.06.2020][2]

Source: Bloomberg

The sterling buyers are not discouraged by the lack of progress in the UK-EU negotiations. Boris Johnson expresses optimism, claiming after the meeting with the EU leaders that there is a good chance of striking the Brexit deal before the end of July. However, investors realize that this agreement will only be a shadow of that comprehensive deal promised by the Brexit supporters in 2016. After all, the [GBP/USD][3] was trading at 1.5 at that time, so the risk of a no-deal Brexit is likely to have been priced in the pair’s quotes. This is likely to be the major reason for the pound’s stability after London announced that the transition period won’t be extended after December 31. The uncertainty has somehow eased, and so, the sterling has been up.

Of course, the [GBP/USD][3] is much dependent on the US stock indexes and ignores the UK domestic data, but it should still react to the outcomes of the BoE meeting. Bloomberg’s median forecast suggests that the BoE should expand the UK QE by £100 billion to £745 billion and hold the interest rate at 0.1%. If the interest rate goes below zero, or the Bank of England follows the Japanese example of targeting the bond yield, the pound bulls should be set back.

In the negative scenario, the sterling may go down to $1.2455-$1.2465, and then, to $1.2345-$1.236. However, it is not a good idea to sell the [GBP/USD][3] when Forex is following the S&P 500 trends. I do not think the correction of the US stock market will be deep. Therefore, it even may be relevant to enter buy trades on the price fall. You can do this using the [LiteForex convenient trading services][4].

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Price chart of GBPUSD in real time mode

![Pound is playing with the shadows][7]

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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