GBP/USD breaches 1.3100 against the greenback

Chris Lee

The British pound has finally managed to recover some of the ground it has lost in recent weeks and months – and the main victim has been the dollar.

The currency went up to above the 1.3100 level in its pair against the dollar, which was its best performance in around four months.

The development now means that the 1.3200 level, which it last saw just before the pandemic lockdown began in the country, is on the table as a potential new milestone for the pair.

There is a feeling among some analysts and strategists that the pound has been suppressed for too long, and as a result, it is now ready to surge.

One problem that the currency might face, however, is the recent announcement that parts of England have been forced back into lockdown following a spike in coronavirus cases.

Some areas around Manchester and other major urban zones have been told that there is to be no mixing of households.

Looking to the long term, there are still some big concerns for the pound.

While many traders may now be experiencing fatigue at the thought of building Brexit into their planning, it does remain one of the major potential market-shifting forces ahead – perhaps, now, aside from the coronavirus.

No fundamental analysis would be complete without considering what could happen to the British economy if no trade deal is struck at the end of 2020.

This is the self-imposed deadline for talks to conclude, and at present there does not appear to be any firm move towards an agreement.

The consequences of failing to strike a deal in this regard could be severe for supply chains, money flows and more.

The outcome of a so-called no deal Brexit cannot be forecast with any certainty, and predictions are largely dependent on political positions.

However, with the markets flocking to the pound in what appears to be a move towards short-term gains, the pound has a while to go yet before it finally has to resolve the Brexit question.

In the closer future, the currency will next week grapple with a Markit manufacturing purchasing managers’ index, which is due out at 8:30am GMT on Monday and will cover the month of July.

This is expected to show no change from its previous position of 53.6.

On Thursday, meanwhile, the Bank of England’s Monetary Policy Committee, which sets the country’s interest rates, is set to meet.

As yet, it remains unclear which direction its announcement will go in – and, consequently, whether rates will be pushed to even lower amounts.

Another key event will be a speech from the Bank’s governor Andrew Bailey, who took office around the time that the lockdown began.

Traders will no doubt keep a close eye on this speech at 11:30am GMT as they attempt to ascertain what the Bank’s long-term monetary strategy might be.

Chris Lee

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