GBP/USD forecast for 16.07.2020

July 16, 2020

GBP/USD forecast: Pound caught the wind of changeDmitri Demidenko

Fundamental Pound forecast for today

Global risk appetite is no longer the main driver of the GBP/USD

For a long time, amid its high volatility, the GBP depended on the changes in the global risk appetite, behaving like an emerging market’s currency. Nonetheless, investors have now changed their point of view, as financial markets are stabilizing, and it is clear that the peak of the global economic recession has been over. Now, the major forex driver is the speed of the recovery trend in a particular country, which is greatly determined by the epidemiological situation. And the epidemiological situation is difficult in the UK.

The UK is likely to be among the European countries worst affected by COVID-19. About 300,000 coronavirus cases and 45,000 deaths, a late strict lockdown made the OECD forecast the UK GDP drop by 11.5% in 2020, which is the worst downturn for the advanced economies. Some improvements in the data on the UK retail sales, PMI, and inflation allowed the BoE Chief Economist Andy Haldane to suggest that the UK GDP should rebound sooner than it was earlier expected. It encouraged the [GBP/USD][1] bulls to draw the price to the top of figure 26. However, the success of the sterling buyers has not lasted for long.

The UK GDP report for May showed that the economy expanded by only 1.8%, instead of 5.5% expected by Reuters experts. It prompts that it will take a longer time for the UK GDP rate to return to the trend. The derivatives market expects the BoE will cut the interest rate below zero by March 2022. Economists polled by Bloomberg forecast the QE expansion by £50 billion through the end of 2020. The MPC Member Silvana Tenreyro says she is willing to vote for the further measures to support the UK economic recovery.

Dynamics of the probability of the BoE interest rate changes

![LiteForex: GBP/USD forecast for 16.07.2020][2]

Source: Bloomberg

The head of the Bank of England Andrew Bailey supports this idea, saying that the central bank will do its best to support the UK GDP growth, and the interest rates should be kept low for a long time.

The pound is weakened because of several fundamental factors. The MPC members sound dovish, investors are disappointed as the UK economy fails to rebound quickly and shift their focus from the risk appetite to the divergence in the GDP growth. Furthermore, the Brexit issue has not been solved, and the breakup in trade relations with the EU will worsen the UK economic state that is already weak. The UK growth, according to Bloomberg is recovering, slower than that of other European countries. It suggests reasons to buy the [EUR/GBP][3] with targets at 0.925 and 0.94.

Dynamics of the recovery pace in European countries

![LiteForex: GBP/USD forecast for 16.07.2020][4]

Source: Bloomberg

I expect the [GBP/USD][1] to consolidate in the trading range of 1.24-1.27. The pair should be responsive to the economic reports in the UK and the USA, as well as the news about Brexit. The epidemiological situation in the USA is worse than in the euro area. Besides, the US dollar long-term outlook is bearish. So, the [GBP/USD][1] uptrend could yet recover. Nonetheless, the sterling must have a fresh driver to go up form the trading range.

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Price chart of GBPUSD in real time mode

![GBP/USD forecast: Pound caught the wind of change][7]

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