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Forecast for GBP/USD for 24 June 2020

June 24, 2020

June 24, 2020

Pound outsmarted banksDmitri Demidenko

GBP/USD’s rally may look paradoxical, but in fact it doesn’t.

When something looks paradoxical, it means you aren’t aware of all the details. BofA Merrill Lynch asserts that the pound’s fluctuations at Forex are neurotic at best and incomprehensible at worst. The pound has been requalified as the developing market’s currency once and for all. Brexit made it a mirror of Great Britain’s small and shrinking economy. In fact, [GBP/USD][1] can’t be growing for many reasons: London and Brussels’ talks about Brexit ended in deadlock; the British GDP lost 20% in April; the government debt exceeded the size of the UK economy in May for the first time since 1963 and unemployment benefits jumped to almost 3 million. May BofA Merrill Lynch be unaware of those reasons?

The pound was called “the Great British Peso” (GDP) long ago: it’s more volatile than other G10 currencies while reversal risks are growing as the demand for high-yield assets is improving. Such factors as the UK weak economy, tense political landscape and Bank of England’s ultra-soft monetary policy are often ignored, though. At June’s meeting the BoE increased QE by £100 billion, which will lead to a further balance growth. The balance sheet grew to almost £700 billion. Andrew Bailey asserts the government would have had to finance itself if the BoE hadn’t stepped in in March. Bank of England Governor thinks that the REPO rate will be raised before the balance starts shrinking.

BoE’s balance dynamics

![LiteForex: Forecast for GBP/USD for 24 June 2020][2]

Source: Bloomberg.

Though the BoE’s monetary policy has remained ultra-soft, the forward market indicated a rate drop below zero and further QE expansion not long ago. Investors believe it will happen if the UK economy continues worsening, but inversely, it is growing better. The fastest ever growth of business activity in the manufacturing sector in May suggests a V-shape recovery of GDP. The indicator may return to the trend much earlier than expected.

Great Britain’s GDP dynamics

![LiteForex: Forecast for GBP/USD for 24 June 2020][3]

Source: Bloomberg.

As for Brexit, nothing is lost for the pound. The markets are tired of uncertainty. The parties won’t prolong the transition period and are ready to settle the issue before autumn so that the parliaments have time to ratify the agreement. It’s a bullish factor for [GBP/USD][1]. London will be allowed to depart from the EU principles, but it will pay for that through import taxes.

BofA Merrill Lynch’s mistake lies in paying too much attention to Great Britain’s domestic data while the USD’s share in global conversion operations indicates the importance of an external background. I mean a global risk appetite and demand for safe haven assets in the first place. If you trade macrostatistics, your choice is [EUR/GBP][4]. [GBP/USD][1] will continue going north as the world’s epidemiological state improves. [Long positions formed from 1.2345][5] should be moved to a breakeven level and built up at the resistance breakout at 1.255.

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Price chart of GBPUSD in real time mode

![Pound outsmarted banks][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/balabce-boe-24-06-20.jpg?w=30&s=566ac437bd30e693dfb70d1d02801e5a
  3. cdn.liteforex.com/cache/uploads/blog_post/fundamental_analysis/uk-economy-24-06-20.jpg?w=30&s=84fb4f923c16d8ca8dae7013e7eeb1e7
  4. my.liteforex.com/trading/chart?symbol=EURGBP&returnUrl=true
  5. www.liteforex.com/blog/analysts-opinions/pound-is-playing-with-the-shadows/
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  8. cdn.liteforex.com/cache/uploads/blog_post/fundamental_analysis/liteforex-blog-gbpusd-24-06-20.jpg?q=75&w=1000&s=75f32265908ddeae2bcc1a73b39e4f79