06.01.202110:26 Forex Analysis & Reviews: GBP/USD: Pound is expected to decline, but it ignore these signals

According to many analysts, the pound's current strengthening is deceptive. Experts believe that it may decline in the near future, despite encouraging factors such as the signing of the Brexit agreement and the adoption of a package of business support measures.

On Tuesday, the British currency moved around the range of 1.3580-1.3585, then slightly fell due to the announcement of the next lockdown in the UK amid the appearance of a new strain of COVID-19. But the situation improved on Wednesday. Experts have recorded a growth in the pound, who managed to ignore the introduction of the lockdown. The GBP/USD pair was trading near the range of 1.3642-1.3643 and is not going to stop there.

However, many experts are sure that this upward movement is just temporary and so, the pound is expected to resume its decline in the near future. This is facilitated by coronavirus restrictions, which worsen the mood of investors. The debilitating financial uncertainty is also another factor that puts pressure to the pound. It should be noted that the business sector accounts for about 7% of the UK economy, but it is not regulated by the Brexit agreement. The agreement signed between London and Brussels regulates not financial, but economic relations, primarily controversial issues related to agriculture and fisheries.

The British currency has significantly strengthened against the US and European currencies after the conclusion of a trade deal on Brexit. Currently, the British authorities' adoption of a new fiscal stimulus package worth 4.6 billion pounds ($6.26 billion) has provided significant support for the GBP. Experts emphasize that this measure is necessary to support the national business. According to the heads of large companies, a number of British economic sectors will be in a deplorable state by the spring of 2021. It should be recalled that by this time, many business support programs will be completed, and the fiscal measures taken by the authorities will not be sufficient to restore the economy.

According to Adam Marshall, head of the British Chamber of Commerce, a long-term business support plan is needed for long-term economic rehabilitation. He emphasized that it should cover the period after spring and until the end of 2021. At the moment, the UK Ministry of Finance will allocate 4 billion pounds for one-time subsidies for 600 thousand retail, hotel and entertainment companies. An additional 594 million pounds will be received by other business areas most affected by the introduction of quarantine measures. The Financial Times estimates that the UK government has allocated 280 billion pounds to support the economy during the COVID-19 pandemic.

Nevertheless, the pound is recently rising, despite the economic issue and the introduction of lockdowns. However, experts and market participants negatively assess its short-term prospects. Many believe that the pound's current rise is a small respite before the next decline. Analysts warn that the situation may change any time, although the pound has taken a break in declining.