21.08.202010:38 Forex Analysis & Reviews: Pound shows growth as it fear declining

The inconsistency of the British currency clearly showed itself this week: the pound rose sharply, although many factors foreshadowed its decline. Experts draw attention to the volatility of the pound, warning market players against excessive optimism about its growth.

The catalyst for the rapid rise of the GBP was the improvement of the macroeconomic situation in the UK. According to a recent report, the country's economy is experiencing a rise in inflation, which is favorably reflected in the dynamics of the pound. According to the National Bureau of Statistics, annual inflation in the United Kingdom unexpectedly jumped to 1% last month, compared with 0.6% recorded in June.

An important support for the pound was the rise of the core consumer price index (Core CPI). This figure exceeded economists' expectations, increasing by 1.8% compared to July 2019. The preliminary forecast assumed growth of only 1.3%, so the market's excitement about the rise is quite natural.

Positive comments from representatives of the Bank of England contributed to the growth of the pound. At a meeting held earlier this month, Central Bank leaders noted an improvement in the prospects for the national economy. The optimistic mood of the regulator contributed to the strengthening of sterling and the growth of the GBP/USD pair. As a result, the Bank of England kept the key rate at the same level of 0.1%, as well as the volume of asset purchases (within 745 billion pounds).

According to Andrew Bailey, Governor of the Bank of England, the regulator still does not rule out introducing negative rates and other strong stimulus measures if necessary. At the moment, the Central Bank will not use zero rates, but this trump card remains up its sleeve as a backup option. According to analysts, the Bank of England may return to this issue in the autumn, and even rising inflation will not stop the regulator from easing monetary policy.

The current situation contributed to the active growth of the British currency. As a result, the GBP/USD pair exceeded the local resistance level and reached a new high this year. On Wednesday, August 19, the pair hit an impressive 1.3267. The reason for this rise, in addition to the inspiring macro data, was the long weakening of the dollar. According to experts, the strengthening of the pound occurred due to the sinking of the US currency across the entire spectrum of the market.

At the end of this week, the GBP/USD pair rose to the psychologically important resistance levels of 1.3145 and 1.3210, but attempts to consolidate above these values were unsuccessful. Experts fear that the pair will face a rapid collapse and a long downward correction in the near future. On Friday morning, August 21, the GBP/USD pair started from a relatively high level of 1.3235, but later pulled back to 1.3227-1.3228, confirming analysts' concerns.

The specialists believe that the closest important level for the GBP/USD pair will be the level of 1.3000. If this barrier is broken, the pair may go to the level of 1.2750, without disrupting the general upward trend. The next goal for the GBP/USD pair will be the level of 1.3500 – the maximum for the last two years, which the pound will have to work hard to overcome.

By now, the pound has gained impulse and is not going to give up, although the probability of a pullback to low positions is still high. According to analysts, the exit of the country from the European Union without a deal remains a threat for both the British economy and the pound. Experts summarize that "hard" Brexit may become the driver of the fall of the national economy and the pound, primarily in the GBP/USD pair.