GBP/USD: Brexit let the pound weaken again


The pound is experiencing shocks again due to the UK's withdrawal from the European Union or the so-called "Brexit". More so, London and Brussels failed to agree again on a mutually beneficial trade deal, which is extremely negative for the pound's dynamics.

These trading contradictions between both parties let the pound weaken again, introducing an imbalance in the GBP/USD pair. On the first day of winter, the pound rose by 0.2%, reaching the level of 1.3347. Yesterday, it reached and broke through a three-month high of 1.3409. Today, the GBP/USD pair is moving around the range of 13417-1.3418, heading towards new highs. Experts believe that the pound could possibly rise to the level of 1.3500 in the short-term and medium-term planning prospects.


The Eurocurrency, which is the pound's rival in the GBP/USD pair, also adds pressure. Therefore, the British currency is having a hard time right now. Analysts think that the euro has become a victim of fiscal stimulus and high risks of deflation in the eurozone. Over the past four months, inflation in the euro area has remained in the "red" zone. This worries the ECB, who is afraid that the price will further decline amid increased deflation in Europe. According to currency strategists at Societe Generale Bank, many Euroblock countries will lag behind in 2021 to those States that are not too resistant to the growth of their currencies.

For the past two weeks, the ECB has been paying attention to the fact that inflation in the euro area will remain in the negative area. Experts say that this process can take several months. It should be noted that a decrease in inflation contributes to an increase in the volume of asset repurchases by the regulator, and this has a very negative impact on the Euro's dynamics. However, market participants do not lose hope for the recovery of this currency in 2021.

At the moment, the market is focused on the prolonged negotiations between the UK and the EU. The United Kingdom is currently in a transition period that will end on December 31, 2020. The "suspended" state of Great Britain negatively affects both the country's economy and the national currency. What worsens the situation is the lengthy discussions of trade issues between London and Brussels, which come to a stagnation occasionally.

Analysts believe that the next round of trade negotiations between the UK and the EU is still in process, although the parties are ready to conclude an agreement by December 31, before Brexit ends. Experts do not exclude that the process will persist and discussions will continue in 2021. Thus, we should not expect miracles in relation to this issue. This is confirmed by the statement of the British Minister Michael Gove, who notes the lack of progress on fisheries issues and rules for the management and resolution of trade disputes. The official does not exclude the possibility of the country leaving the EU without an agreement. In a similar situation, the British economy and national currency will be under strong pressure.

In turn, the pound's current growth occurred on a wave of general optimism. Market participants are tensely awaiting the conclusion of a trade deal between London and Brussels, ignoring the lack of progress in negotiations. However, analysts warn that ignoring problems will not lead to positive results. The fragile balance in the GBP/USD pair may break, and the pound will drop again.

However, some experts' forecasts for the GBP are quite optimistic. They expect the indicated currency to strengthen in the short-term planning prospects, covering the beginning of 2021. Michael Hewson, currency strategist at CMC Markets, said that the pound's position will strengthen and it will rise to1.3500 by the end of 2020. He specifies that this scenario will be implemented with the help of the US dollar's weakness. According to him, Brexit is the last barrier for the pound. Thus, if the pound surpassed this, it will reach the finish line and reach a new high of 1.4000.

The material has been provided by InstaForex Company -