11.02.202116:13 Forex Analysis & Reviews: GBP/USD: Pound's new target set at 1.4000

The pound sterling confidently took the lead this week, and this trend continues. According to analysts, the closest sterling level will be 1.4000, to which it is now rushing.

Since the beginning of this year, the sterling has managed to bypass the euro and continues to hold its leading position. According to experts, this is mainly due to the high rates of vaccination of the population against COVID-19. In addition, the UK expects to get access to the securities clearing market from the EU leadership. This is necessary for the active functioning of the country's financial system said Bank of England Governor Andrew Bailey.

For the British economy, the importance of access to common European markets cannot be overemphasized. According to analysts, at the beginning of this year, the rate of economic growth in the UK was one of the lowest in Europe. The UK economy is currently under serious pressure from two powerful factors - the difficult Brexit situation and the protracted recovery from the COVID-19 pandemic. The country's retail sector leaves much to be desired: January 2021 was the worst month for trade, and consumer spending fell 16% compared to January 2020.

Experts stressed that the situation can be corrected by the tough monetary policy of the country's leadership. Its softening will negatively affect the rate of the sterling. A tangible slowdown in the growth of the manufacturing sector and retail trade adds fuel to the fire. In such a situation, the British authorities will have to resort to the introduction of a new stimulus program following the example of the Fed and the ECB. However, the implementation of such a scenario will lead to a weakening of the national currency.

On Thursday, the GBP/USD pair showed mixed dynamics, trading near 1.3843-1.3844. The pound declined against the greenback after buyers' unsuccessful attempts to gain a foothold above 1.3850. However, experts expect the sterling to rise to 1.4000 in the near term. This is facilitated by Bailey's comments, who sees no need for an additional easing of monetary policy.

The sterling may be supported by positive macro statistics on GDP dynamics and industrial production in December 2020, which is scheduled for publication on Friday. According to preliminary forecasts, the rate of economic growth in the UK in the fourth quarter last year increased by 0.5% on a quarterly basis. Experts also expect growth in industrial production in the country by 0.5%.

The growth of risk appetite and the current weakening of the US dollar contribute to maintaining the positions of the GBP/USD pair near multi-year highs. According to analysts, a weak report on the US CPI and the soft rhetoric of Federal Reserve Chair Jerome Powell exert serious pressure on the USD. Recall that the US regulator approved the further use of incentives to accelerate the economic recovery in the United States.

However, the current situation is also not very favorable for the British economy. According to the NIESR Institute for Economic Research, the forecast for the growth of the British economy for 2021 has been revised downward - from the current 5.9% to 3.4%. NIESR experts are confident that the country will return to the pre-crisis level no earlier than 2023, and in the first quarter of this year, the UK economy will show negative dynamics.