The pound continues the last effort

A positive start to the week is reflected in the growth of stock indices and a decrease in the demand for defensive assets is based on several serious reasons. Firstly, it is the resumption of trade negotiations between the United States and China. White House adviser Kellyanne Conway commented on the current situation in a positive way, saying that the deal at the end of the trade war is close to completion. Even if one fails to complete the deadline before March 1, there is no doubt that in the event of a positive dynamic in the negotiations, the deadline may be slightly postponed in order to find time for Trump and X to meet in person.

Secondly, another positive news is the preliminary agreement between the leaders of the Republicans and Democrats on financing the construction of the wall between the United States and Mexico, which means that the threat of renewed shutdown on February 15 has decreased.

Current conditions contribute to the growth in demand for currencies of developing countries. The US dollar will also remain as favorites in risky assets and both gold and the Japanese yen for defensive assets, which will be sold.


For the euro zone, no data is expected until Thursday to publish data that may change the market's assessment. The euro is under pressure for several reasons as EUR/USD fell to strong support at 1.1260/70. An attempt to test this level is more than likely to occur during the day, and if successful, the focus of decline will move to the key level of 1.1215.

Great Britain

The pound reacted negatively to the statistics published on Monday since all of them were worse than forecasts without exception which was an unpleasant surprise for the players. In 2018, the Preliminary data on GDP growth amounted to 0.2% in Q4 and annual growth rates of 1.3%, which is worse than 1.6% a quarter earlier. The main growth was noted in the service sector, and as for construction and industrial production, a slowdown was significant.


The volume of commercial investments fell in 4 square meters 1.4%, while a 0.2% growth was forecasted, which decreased for the whole year for 3.7%. This is the worst figure in more than 5 years.

The decline in the industrial sector in December also turned out to be stronger than forecast. As a whole, it grew by -0.5% and in the manufacturing industry, it shows -0.7% growth. In both cases, although symbolic, these were predicted in plus. For the first time since 2009, all 4 key indicators for the industry went into the negative zone and taking into account the slowdown in PMI in January, we can assume that this is not yet the limit.

The data on the trade balance in December also turned out to be worse than the forecasts and the NIESR report on GDP growth rates over the past 3 months was already finished, taking into account the month of January. The calculated growth rates were 0.2% against the forecast of 0.3%.

The Bank of England lowered growth forecasts but increased the possible damage from Brexit and actually abandoning the plans to raise rates this year. Hence, there are no macroeconomic grounds for growth in the pound at the moment. The only thing that can throw it above 1.32 is an agreement with the EU on an agreement for a transitional period and this will happen only if the parliamentary crisis is overcome. Theresa May is going to appeal again to the Parliament for a request to give her the opportunity to speak until Thursday and try to convince the lawmakers to accept her plan. But for the time being, it must be assumed that the GBP/USD pair is under strong pressure, the immediate support of 1.2820 may not stand up to the bears.

The material has been provided by InstaForex Company -