24.08.202013:08 Forex Analysis & Reviews: The pound came out dry

What happens to the British pound at the end of the summer is not much different from the history that has taken place throughout the year. Sterling is all drowned ahead of time, and then with titanic efforts, they try to explain why it did not only drown, but didn't even get wet. A typical example is the week to August 21, when the largest daily fall in GBP/USD in two months was followed by the most rapid growth of the pair since July 1. Of course, the rollercoaster was influenced by the US dollar, which was actively bought after the publication of the minutes of the July FOMC meeting and sold after the release of data on applications for unemployment benefits. Nevertheless, we must admit that the pound is not a fool.

The double deficit (budget and current account), the first ever excess of the national debt of the Foggy Albion of the £2 trillion mark (the indicator has crossed the threshold of 100% of GDP), the growing risks of a no-deal Brexit and Britain's strained relations with its main trading partners allow us to draw a scenario of portfolio investment outflow. David Frost believes that it will not be easy to conclude a deal, as the parties have little time left, and Michel Barnier argues that London should make clear, constructive proposals.

In my opinion, the agreement will be signed, since both sides are interested in it. The EU is afraid that Britain will start subsidizing its enterprises and flood the European market with goods, and Boris Johnson does not want to further damage his reputation after the failure of his position of non-recognition of COVID-19. If all goes well with politics, the focus of investors' attention will shift to the economy, and its health seems to be improving. In contrast to the Eurozone, business activity continues to recover, consumer spending in the first two weeks of August, according to Fable Data, increased year-on-year for the first time since March, retail sales in July exceeded forecasts almost twice, and, according to city of London economists, GDP in the third quarter will expand by 14.3%, which will be the best dynamics of the indicator in history.

Dynamics of European and British business activity

The British economy is gradually turning from the worst among the G7 countries into one of the leaders, which cannot but affect the sterling exchange rate. However, any pair always has two currencies, for a long time the history of GBP/USD was the history of the US dollar, and it is naive to expect that in the near future the pair will react exclusively to news from the Foggy Albion.

Surprisingly strong statistics on States against the background of the tense situation around the pandemic keep the USD index afloat and create prerequisites for a correction of the GBP/USD. At the same time, you need to understand that as the US presidential election approaches, the pressure on the dollar will increase. According to the ratings, Joe Biden's position looks better than that of Donald Trump, and what is good for the current owner of the White House is good for the US currency. Most likely, the downward trend will continue, so the rebound from the support at 1.3045 and 1.2965 will be a signal to open long positions.

GBP/USD, the daily chart