The euphoria caused by the victory of the Tories in the early elections in the UK, has virtually came to an end. Apparently, the prospect of an orderly Brexit was completely won back at the moment when it became known that the conservatives had gained enough seats to form a parliamentary majority. Against this background, the GBP/USD pair tested the resistance of 1.3500, however, it failed to gain a foothold above.
Now, fixation by investors of the results of the elections, as well as news that the head of the British Cabinet of Ministers Boris Johnson intends to exclude the possibility of extending the transition period after the country’s exit from the European Union, led to a correction in GBP/USD.
In addition, the Prime Minister seems to drive himself into a corner. Once he promised to withdraw Misty Albion from the EU before October 31 or die in the gutter, he is now going to put an end to the retreat if it is not possible to agree with Brussels. This circumstance resuscitates the idea of a “hard” Brexit and puts pressure on the pound, but it is worth recognizing that the current situation is far from September. Investors still believe that the “divorce” will take place before January 31.
What to expect further from the pound?
According to a Reuters insider, serious sellers are near the $ 1.35 level, so you should not depend on breaking through it in the next two to three weeks.
Obviously, it is necessary to improve macro statistics in the UK, which has recently left much to be desired to continue the GBP/USD rally.
On the other hand, Societe Generale experts doubt that the British government will succeed in patching up holes that have arisen due to severance of ties with the EU, but there is hope that a gradual increase in business activity, a still strong labor market, and the fiscal stimulus promised by B. Johnson will be able to contribute to reducing the difference between potential and actual GDP, which will support the bulls on GBP/USD.
As for the Bank of England, the regulator is unlikely to want to step on the old rake again. Mark Carney and his colleagues lowered the interest rate immediately after the Brexit referendum in 2016, fearing the consequences of a break with the EU for the British economy. Now, they are unlikely to soften monetary policy, but rather prefer to see how an orderly Brexit will affect GDP.
If we add the factor of capital inflow to the passive position of BoE and to the improvement of macro statistics in the UK, given the fact that British stocks now look cheap compared to their American counterparts, the forecast of HSBC experts at 1.45 for the GBP/USD pair does not look like something out of a number of fiction. In this regard, consolidation in the range of 1.3000-1.3350 makes sense to use for the formation of medium - and long-term long positions.
The material has been provided by InstaForex Company - www.instaforex.comvia GBP/USD: Euphoria caused by the Tory victory ends. What to expect next from the pound?
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