22.04.202009:25 Forex Analysis & Reviews: Chronicles of the "burning" pound: from declining to trying to rise

The British currency had to experience the "charms" again of investors fleeing to the dollar. It declined sharply, reaching a 14-day low, and experts say that this is not the limit. Analysts do not exempt further anti-records of the pound, which is trying to restore its position.

On the evening of Tuesday, April 21, the pound was in the fire of a downward trend, in which its previous achievements were burned. The reason for this was the massive outflow of investors in protective assets, primarily in USD. As a result, the pound dropped 1.3% to $ 1.2276. Experts consider this the lowest value in the last two weeks. On Wednesday morning, April 22, the GBP/USD pair managed to rise to 1.2284 - 1.2285. Later, this pair tried to enter the upward spiral, and its actions were successful. Currently, it moves between 1.2312 - 1.2313, gradually moving away from yesterday's shocks.

The price "swings" that carries the British currency from rise to fall is gaining strength thanks to disappointing macro statistics. Relatively positive data on the number of applications for unemployment benefits in the UK look as a separate bright spot against this background. According to preliminary forecasts, their explosive growth in March was expected to reach 175 thousand, but reports showed a rather low value - about 12,200 thousand. According to experts, GBP could take advantage of this and strengthen its position, but the widespread deterioration in risk appetite did not leave the pound a single chance.

In addition to fleeing to the dollar, significant pressure on the pound was exerted by the general weakening of the national economy, all of whose forces are spent on eliminating the negative consequences of COVID-19. Experts note not only the total subsidence of the labor market in the UK, but also a decline in wage growth. In March 2020, a decrease of this indicator by 2.9% was recorded, which continues for the seventh month in a row. It can be noted that this indicator was in the range of 3.9% –3.8% last summer of 2019. The level of salaries of the British, taking into account bonuses, also ended up in the "red zone", not exceeding 2.8%, which is considered a critical slowdown of this indicator.

The current situation leads to sharp fluctuations in the pound, most often to failures. In this regard, all the achievements of the British currency "burn", and it has to start the recovery again, almost from scratch. Weak statistical data, reflecting the vulnerability of the British economy, are becoming additional barriers to this. One of these painful points may be the negative dynamics of inflation growth, the publication of which is expected on Wednesday, April 22. Preliminary calculations show that the situation is far from positive: experts expect a monthly slowdown in the consumer price index in the UK to -0.1%, and a decrease to 1.5% over the year.

At the end of the week, a bitter final may be a report on retail sales in the UK. Experts fear that disappointing information may finally break the pound, the recovery of which after such data will be long. It is possible that retail sales will inflict a sensitive blow to the "bulls" on the GBP/USD pair. According to preliminary forecasts, both the monthly and annual indicators will go to the "red zone". The pound will need a lot of effort to reach acceptable indicators in the near future.

At the moment, many analysts fix the depressive state of the pound, which it is fighting with varying success. Experts believe that the reason for this "internal combustion" is a global decrease in risk appetites in the context of a pandemic, when all investors' attention is focused on protective assets. As a result, the British currency was left out of business, and then abruptly went to the bottom. Analysts fear that current measures to limit the spread of COVID-19, such as closing businesses, will have such a negative impact on the British economy that the country will face its worst recession in 300 years.