21.01.202012:23 Forex Analysis & Reviews: Pound: one step forward, two steps backward

The British currency continues to struggle for levels around $1.3000. On Monday, the GBP/USD pair sank to weekly lows, but managed to attract buyers near 1.2970. It completed the fall from levels above 1.3100 that began on Friday.

1.3000–1.3300 acts as a strong resistance area, where the pair has repeatedly turned to decline over the past year and a half.

The pressure on the pound continues to be exerted via concerns about a "hard" Brexit, as well as the increased expectations of a cut on interest rates by the Bank of England.

On Sunday, UK Finance Minister, Sajid Javid, addressed business representatives and urged local companies to adjust to a new future in which the country will no longer be tied to EU's rules and regulations.

"UK will not be subject to these rules. We will not be in the single market and the EU customs union," the head of the British Finance Ministry said.

Brussels responded to this statement by saying that this approach will inevitably lead to new trade problems between Albion and the bloc, that may consequently cause a reduction in trade, investment and jobs.

Meanwhile, the British economy continues to experience difficulties due to Brexit.

"A sharp drop of 0.3% over the month means that national GDP is close to stagnation on a quarterly basis. The services sector is sluggish but growing (+0.1%), while production, limited by both global and local headwinds, is declining by 0.6%. Consumers were the main drivers of economic growth in the United Kingdom last year, so the decline on retail sales in December is particularly disappointing. Inflationary pressures unexpectedly eased last month, when the consumer price index fell to a three-year low of 1.3%," the Royal Bank of Scotland said.

According to experts, given the weakness of industrial production, trade, inflation and retail sales in the UK, the chances of a rate cut by the Bank of England in the first quarter are quite high. More than two members of the monetary policy committee can vote to ease it.

Take note that the pound is just beginning to slow down. Reports on the labor market and business activity in UK, which will be released this week, may worsen the situation. Against the background of weak macrostatistics, the pound may fall below $1.29 against the US dollar.

Commerzbank analysts believe that the GBP/USD pair can pay a visit to the 1.2850 area.

"On Friday, the pair formed a bearish "external day" pattern on the chart. Now, we expect a decline to the upward trend line at 1.2853. Below the current price level is 1.2908 (December low), followed by the aforementioned four-month upward trend line at 1.2853. The 200-day moving average is at 1.2688. A close above 1.3118 (January 17 high) will ease the current downward pressure, and again target the market at 1.3285, " they said.