Pound price forecast 11 February 2021

2021-02-11

Pound is sweeping everything in its path. Forecast as of 11.02.2021Dmitri Demidenko

Sterling has found itself at the very epicenter of V-shaped vaccine trade strategies and is capitalizing on the vaccine campaign’s success. How quickly can the [GBPUSD][1] pair reach the levels of 1.4-1.42? Let us discuss the Forex outlook and make up a trading plan.

Weekly pound fundamental forecast

When the market turns a blind eye to bad news and rallies in response to good news, it is called euphoria. How long it will last, no one knows, but you should not stand in the way of the bulls in such a situation. The British pound ignored BoE’s call to banks to prepare for negative interest rates and rose against the US dollar to its highest level since April 2018. Sterling is not intimidated by the UK economy’s weakness, nor the risks of monetary expansion, or the upcoming political problems.

The National Institute of Economic and Social Research lowered its forecast for UK gross domestic product growth in 2021 from October’s 5.9% to 3.4%. The NIESR also stated GDP could remain below pre-pandemic level until the end of 2023. This is significantly worse than the Bank of England estimates, which expects the economy to return to pre-crisis levels in the first quarter of 2022.

UK GDP Forecasts

Source: Bloomberg.

The NIESR’s pessimism is understandable. The organization calls on the government to extend the duration of the support programs that are about to end soon. To declare in such a situation that the glass is half-full is like demanding the end of fiscal stimulus.

In my opinion, the best option is to plan for the worst and hope for the best. What do both the Bank of England, which talks about the possibility of introducing negative rates, and the National Institute of Economic and Social Research. Investors reciprocate them: they are not afraid of the worst recession in the last 300 years or the double-dip recession in the first quarter. They are buying the pound due to expectations that the economy will open up and grow rapidly following the success of the vaccination campaign. More than 13.5 million people in Britain have been inoculated so far, accounting for 20.3% of the population. For comparison, in the US 14% of the country’s population have been vaccinated, in the EU this share is even less - 4.2%.

The president of the European Commission, Ursula von der Leyen, has admitted the EU’s vaccination strategy mistakes. The European Union was overly optimistic about production capacity and too confident that the doses would be delivered on time. The divergence in vaccination rate allowed me [in January][2] to recommend sales of [EURGBP][3] with targets in the 0.87-0.88 zone, which were successfully achieved.

Indeed, the rapid and large-scale vaccination campaign, as well as the COVID-19 seasonal decline, are leading to a sharp drop of confirmed cases in the UK. This raises hopes for an early opening of the economy, including the service sector, which accounts for the lion’s share of Britain’s GDP.

Dynamics of COVID-19 confirmed cases

Source: Nordea Markets.

Weekly [GBPUSD][1] trading plan

Sterling turns a blind eye to Brussels’ statement that more time is needed for ratification of the Brexit agreement and a potential referendum on Scottish independence. GBP found itself at the very epicenter of the V-shaped vaccine trade. Hold [GBPUSD][1] longs formed in [the level of 1.3565][4] and use the breakout of resistance at 1.3855 or rebounds from supports at 1.3755 and 1.3735 to add up to them. The target is the level of 1.4-1.42.

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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