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The extremely tense global situation, due to the spread of the coronavirus COVID-19, does not allow the pound to rise. Sterling has almost no chance to grow since investors do not see it as a protective asset, namely such financial instruments are now at the peak of demand.
The negative dynamics of the pound is reinforced by the growing recession in the British economy. According to the currency strategists of Bank of America, sterling could plunge sharply due to the buildup of UK foreign exchange reserves. Experts believe that during the formation of foreign exchange reserves necessary to support the British economy, the authorities will have to sell the pound in large quantities. Note that last month, the UK foreign exchange reserves increased by almost 3%, and by almost 40% on an annual basis.
According to experts, increasing foreign exchange reserves is insurance against economic failure in the near future. This can take large-scale funds, which is why at this stage, the pound may become cheaper. However, there is no choice, and the British authorities will need to revive the economy, which had previously suffered from Brexit.
Forecasts of the analytical company EY Item Club stated that in the first and second quarters of 2020, the UK economy expects a sharp decline. According to experts, in the second quarter, the country's GDP will drop by 12%, since the destructive consequences of the coronavirus will already be manifested. Analysts emphasized that in this situation, the price of the pound may significantly fall. Moreover, the negative news regarding the health of the British Prime Minister Boris Johnson adds fuel to the fire. Recall that on Monday, April 6, he was hospitalized due to a suspected complication of coronavirus infection. All this strengthens the uncertainty regarding the political and economic prospects of the country.
The current situation is undermining the sterling, economists said. Unlike the dollar and the yen, it is not perceived by the market as a protective asset, therefore, it does not attract the interests of investors. At the end of last week, traders hastily sold GBP, driven by the deterioration of the situation due to the massive spread of coronavirus and an increase in the number of cases. Against this background, experts recommend sticking to short positions on the GBP / USD pair . On Monday, the pound fell sharply by 0.33%, to $1.2227, but by the next day, the situation has seemingly stabilized. The pair then traded within 1.2283–1.2284, and then quickly went upward, rising to 1.2296–1.2297. At the moment, the tandem has left this range, breaking the psychologically important barrier of 1.2300, and began to ply near high values of 1.2303–1.2305. However, the GBP / USD pair, later on, failed to maintain its position.
According to analysts, the pound is struggling to cope with the challenges that the global economy faces in connection with the global outbreak of COVID-19. Experts believe that in the near future, the sterling will remain in the same position, but in the medium and long term, we can expect its rise. For this, the pound will have to make considerable efforts and once again confirm its stability.
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