Perhaps the pound would like to touch the heavens, but it's hardly worth waiting for miracles


If in the spring, currency market participants argued about how long the pound would take to recover from last year's highs, now, according to some analysts, the British currency is directed at 2017 lows.

The inability of bears on GBP/USD to update the multi-month lows that were recorded yesterday was the reason for taking profits on short positions in the pound. The publication of positive statistics for the UK has given a fresh impetus to this process, providing a breakthrough to levels above 1.25.

According to the National Statistical Service (ONS), the country's GDP expanded by 0.3% in May compared to April, when a decrease of 0.4% was noted. In annual terms, the figure increased by 1.5%.

ONS analysts noted that the recovery of economic growth was mainly provided by the car manufacturing sector. According to them, the state's GDP may continue to decline in quarterly terms.

"The growth rate in May was a pleasant event, but it is unlikely to be sustainable. We believe that by the end of the second quarter the indicator will be close to zero. At the same time, an improvement in the situation in the third quarter is not expected. Reducing political tensions in the UK should be expected no earlier than July 23, when the name of the country's new prime minister is finally known. However, after clarifying this issue, the focus will shift to the negotiations on Brexit, which may put additional pressure on the pound," ING representatives said.

They adhere to the forecast for GBP/USD at the end of the third quarter at 1.22.

Strategists at TD Securities, in turn, believe that the latest statistical data on the UK may give reason for some reduction in the "shorts" for the pound, but no more.

"It is obvious that a lot of negative was taken into account in the pound, but we still see no reason for investors to reassess risks, and we believe that the GBP/USD decline to new lows remains the least resistance when the currency market participants warm against the dollar. At the same time, we expect the GBP/USD pair to recover by 1.29 by the end of the third quarter," said TD Securities.

"Over the past few months, the pound has dropped significantly, but the potential for its decline has not been exhausted. The uncertainty factor in the question of the UK's withdrawal from the EU remains. The fundamental picture also looks less and less favorable. In particular, we see the risks of reducing the country's GDP in the second quarter, which will push the Bank of England to further soften the rhetoric at a meeting in August," said MUFG experts.

"We do not believe that the GBP/USD pair will be able to stabilize at the lows of December 2018 - January 2019, and we believe that attempts at its growth should be considered as an opportunity for selling. A break below 1.2500 will be a blow to the bulls and will pave the way for movement to the 1.20 mark," they added.

The material has been provided by InstaForex Company -