British pound price forecast for December 17 2020

2020-12-17

Pound both dead and alive at the same time! Forecast Forecast as of 17.12.2020Dmitri Demidenko

The UK withdrawal from the EU makes the British economy vulnerable. However, if London and Brussels sign a deal, everything will turn upside down. Where will the pound go? Let us discuss the pound future and make up a [GBPUSD][1] trading plan.

Fundamental pound forecast for a year

In early December, Forex traders were discussing the binary scenario. Provided the Brexit deal is signed, the pound will be alive. Otherwise, if the UK withdraws from the EU without a deal, the pound will be dead. However, the sterling is like a Schrödinger’s cat; it has to be alive and dead. Following the [GBPUSD][1] crash to 1.314, indicated in the [previous pound analytics][2], the pair soared and is about to hit an upside target at 1.367. Where will the British pound go next?

After a dinner meeting of British Prime Minister Boris Johnson and European Commission President Ursula von der Leyen, everyone was prepared for a no-deal Brexit. But the talks continue, and Boris Johnson will recall the UK parliament over Christmas break to legislate for a deal if one is secured. The European Commission President claims that the fisheries problem the only issue they haven’t found a way forward yet. The French president Emmanuel Macron is the only opponent to the deal, while the German Chancellor Angela Merkel says a deal is better than no deal.

The headwind for a pound was quickly replaced by a tailwind. The chance of the interest-rate cut by the BoE has dropped, and the [GBPUSD][1] has soared to the highest level over the past 2.5 years. Of course, the major reason is in a weak dollar, weakened by the Fed and Congress. After all, all safe havens are unwanted now.

Dynamics of the expected change of the BoE rate

Source : Bloomberg

The uncertainty around Brexit should embarrass the Bank of England, whose condition also resembles Schrödinger’s cat. However, the BoE can remain passive, keeping the rate around 0.1% and continuing QE of £895 billion. The BoE Governor Andrew Bailey noted last week, while the central bank still has room to buy more bonds and pump cash into the financial system, that won’t prevent long lines of trucks if borders are hardened.

Although the pound is up, the UK economy remains weak. The GDP is recovering very slowly, following the worst recession over the past 300 years, and the Bank of England expects a double-dip recession in the fourth quarter. The uncertainty around Brexit makes the UK lose its positions in the world exports.

Dynamics of UK GDP

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Source : Bloomberg

Deterioration of UK exports

Source : Financial Times

[GBPUSD][1] trading plan for a year

What doesn’t kill us makes us stronger. If London and Brussels sign a deal, the UK will improve its position in international trade. In addition to successful vaccination, associated with the increase in PMI, these factors will support the [GBPUSD][1] bulls in 2021. The downside driver in the first quarter will be the referendum on Scotland’s independence. However, I see a good chance of the pair’s rise to 1.4, based on the general situation. In the short run, traders could be exiting long and press the pound a little down, which will allow us to buy the sterling at a lower price.

Price chart of GBPUSD in real time mode

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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