09.07.202112:43 Forex Analysis & Reviews: Pound - "Vaccine Champion": Prospects and Hopes for GBP

The British currency remains relatively stable, trying to keep the gained positions and build up new ones. In the medium and long-term planning horizons, experts expect the pound to rise, despite its limited growth potential.

Currently, the British currency has sunk slightly against the background of disappointing macro statistics. The GBP sales started after the publication of reports on UK GDP (0.8% with an expected 2%) and low industrial production (0.8% with a forecast of 1.5%). On the morning of Friday, July 9, the GBP/USD pair was trading near 1.3775, but later lost some of its gains.

According to analysts, sterling is stuck among local lows, near the powerful support level of 1.3754. Experts believe that in the event of a breakdown of the strong resistance level of 1.3794, bullish sentiment will increase in tandem. While maintaining the moderate dynamics of the GBP/USD pair, it will remain within the range of 1.3754-1.3794. This assumption is partially realized, giving the pound hope in the medium term. However, by now the GBP/USD pair has fallen to 1.3763, leaving no attempts to rise.

The British currency's hopes are supported by currency strategists Credit Suisse, who expect the GBP/USD pair to recover to 1.3940, and then to the round level of 1.4000. The bank emphasizes that in the near future, it is possible to form a peak in the area of 1.4000, the breakthrough of which will lead to an enhanced recovery of the pound.

Positive sentiment regarding the prospects for sterling is supported by analysts at Credit Agricole CIB Research. The bank supports the "bearish" trend of the British currency, which will continue in the coming weeks. "The GBP has gone from an investment vehicle for generating 'Covid-19 vaccine alpha' in the FX markets to a hedge against the resurgence of the pandemic in recent weeks. The rapid fall from grace of the hitherto G10 FX 'vaccine champion' warrants a cautious stance on the currency in the near term," Credit Agricole CIB Research emphasizes.

The popularity of the British currency is promoted by positive changes in the country's economy. The UK is on the way to an economic recovery, the signs of which are a shortage of labor and rising wages. It should be noted that the salary increase is the fastest since 2014. The continuation of the existing trend will force the Bank of England to curtail the monetary stimulus program, which will lead to the strengthening of the GBP.

Earlier, at the end of 2020, the UK showed the worst economic result among developed countries, but now much has changed. At the moment, England is among the top 5 most vaccinated countries (67% of the vaccinated population). Success in immunization allowed the British authorities to declare the complete lifting of restrictions in a week and a half, on July 19.

With regard to the target inflation rate of 2%, the Bank of England maintains the same position, the regulator believes that finding the indicator within 2% is quite natural. An increase in this indicator will require the regulator to curtail the monetary stimulus program. If the Bank of England does this before the Federal Reserve, the pound will receive an impetus for further strengthening in the medium term.