06.11.202011:52 Forex Analysis & Reviews: GBP/USD: Rivalry between the pound and dollar persists

The pound is lagging behind the US dollar this week. It almost did not show itself during the US presidential election, but now it decided to catch up. Analysts believe that this currency is ready to compete with the US dollar to dominate the currency market.

The rivalry between these two indicated currencies can be called a hidden shadow conflict, as the pound sharply rise despite several difficulties. Yesterday, the GBP/USD pair recovered some of its lost positions and overcame the level of 1.3000. This morning, the pair began to rise and was trading near the range of 1.3125-1.3126, trying to stay above.

The current situation turned out to be favorable for the buyers of the pound, which became more active after the Bank of England meeting. The market expected the regulator to increase the quantitative easing (QE) program. Experts believed that the BoE will continue to buy government bonds in the amount of 100 billion pounds, which is unprofitable for the pound, since the growth in money supply is a direct way to devalue the currency. At the same time, the US Fed continues to buy assets worth $120 billion, which contributes to an increase in USD cash flows. Such measures lead to the dollar's decline, so that the GBP and USD will be equal. However, experts emphasize that the current situation is negative for both the pound and the dollar.

The pound has to withstand domestic political and economic difficulties once again. One of them is its possible decline amid long-term purchases of government bonds. It should be recalled that the Bank of England's Monetary Policy Committee announced an increase in the government bond purchase program by 150 billion pounds ($ 195 billion). The regulator also kept the key rate at 0.1%. All this is due to the fact that the British economy is expected to slow down in the fourth quarter of this year, since the country has introduced a four-week quarantine due to the COVID-19 pandemic.

Nevertheless, the weakening USD, due to the critical situation caused by counting of votes in the US presidential election, supported the GBP. It should be noted that D. Trump was in the lead on the night of November 4, but the situation fully changed. Yesterday, J. Biden was ahead with 264 electoral votes, so he was only 6 votes short to completely win. Unfortunately, the market reacted negatively to this news. Against this background, the USDX index (DXY) was the first to collapse, dragging a number of currencies with it.

Despite the negative external background, the pound tried to rise, which ended unsuccessfully. Analysts believe that the current situation hinders the pound to recover, which is worsened by disappointing macroeconomic reports on the composite PMI index. Here, the data for October 2020 turned out to be worse than experts' forecasts (52.3 points), since the PMI indicator did not exceed 52.1 points. Over the past month, the index of business activity in the UK services sector declined to 51.4 points, which negatively affects the pound's dynamics. Therefore, it is necessary for the dollar to weaken entirely, so that the pound will dominate the market with its further growth.

Analysts said that this rivalry between the two currencies will end in victory for the US dollar, as the pound is under pressure from many negative factors, mainly related to Brexit. Another factor that is exerting negative pressure is the second wave of COVID-19, associated with tightening restrictive measures. Experts sum up that the pandemic weakens the British economy as well as its national currency, which do not have a safety margin unlike the American one.