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GBPUSD forecast for 09.07.2020

July 9, 2020

July 9, 2020

GBP/USD forecast: Pound breaks the old rulesDmitri Demidenko

Pound Sterling forecast for today

The [GBP/USD][1] is getting more responsive to foreign factors

The biggest Forex mystery in 2020 in the Pound Sterling. The Bank of England officials suggest a quicker rebound of the UK GDP than it was earlier expected, but the government bond yields are falling. Andrew Bailey claims that the BoE was not planning negative rates at the MPC meeting, but the money market pricing suggests such a possibility. BoE says the £745-billion QE will finish this year, however, an increase in the monetary stimulus signals that the central bank will continue the monetization of government. The UK may leave the EU without a trade deal, but the sterling is growing. The GBP price moves are puzzling, and the first who solves the puzzle will make a big profit.

In theory, if the confidence in the positive economic outlook is getting stronger, and the Treasury increases the issue volumes, the bond yields should go up. Investors are selling safe havens, expecting higher auction returns than earlier. In the UK, on the contrary, the government bond yield has dropped so deep that it is now lower than the Japanese bond yield.

Dynamics of the UK and the Japanese bond yields ​

![LiteForex: GBPUSD forecast for 09.07.2020][2]

Source: Bloomberg.

The market hasn’t featured a strong reaction to Britain’s finance minister Rishi Sunak’s willingness to increase the financial assistance by another £30 billion. A part of the money will be paid to the UK workers who will return to their jobs; some funds will be spent on the discount scheme to boost spending at restaurants, cafes, and pubs. Britain will cut value-added tax on spending on hotels, restaurants, and tourist attractions to boost demand for services hardest hit by the lockdown. The threshold of the stamp duty tax on property purchases will also rise.

Nonetheless, investors doubt that £1000 and £10 will be enough to encourage people to return to their jobs or to go to a restaurant, according to the ‘Eat Out to Help Out’ program. The GDP recovery trend will depend on the COVID-19 situation.

Sizes of fiscal stimulating programs

![LiteForex: GBPUSD forecast for 09.07.2020][3]

Source: Bloomberg.

Boris Johnson, speaking with Angela Merkel, warned that the UK was ready to leave the EU without a trade deal on Australian terms, which is also a negative factor for the pound bulls. Cutting off economic ties is disastrous for business. Nonetheless, the GBP/USD is going up. What’s the matter? I suggest that Brexit makes the sterling more responsive to foreign factors than earlier. The GBP is much more volatile than other G10 currencies, it is even called the “Great British Peso (GBP)”.

The sterling’s correlation with the [S&P 500][4] has increased. Earlier, it was relevant to trade the US economic reports using the USD/JPY, but now, it seems to be more beneficial to buy or sell the [GBP/USD][1]. The sterling now depends on foreign factors, so, the growth of the global risk appetite is a stronger driver than Brexit or the UK economic weakness. I think the pound can reach $1.3 only if there positive news about Brexit and COVID-19 vaccine. Therefore, it makes sense to gradually exit longs entered at levels $1.2535 and $1.235 as the sterling is moving towards $1.272.

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Price chart of GBPUSD in real time mode

![GBP/USD forecast: Pound breaks the old rules][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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