GBPUSD & EURGBP, H4
The pound has not been affected by dismal UK data, with markets long insensitive to poor economic data, which, as UK Treasury Secretary Sunak put it, are “no surprise” given domestic and global lockdowns. Provisional first quarter GDP in the UK fell 2.0% quarter on quarter, while industrial production declined 4.2% in March. Sterling was trading heavily in the data version and has remained tough ever since. Cable hit a three-week low 1.2251, with the UK currency printing a three-week low against the euro competitively. The uncertain tone in global stock markets has translated into weakness in the pound, which has so far developed a fairly strong positive correlation with the direction of the stock market during the pandemic era. At its current level, Cable has been in the lower reaches of the range since early April, which in turn means a consolidation of earnings seen from its 35-year low on 1.1409 that was visible in mid-March. The main 61.8 Fibonacci retracement level at 1.2450 marks the top of the consolidation while at the level of 50.0 1.2250 offers a floor.
Despite the high infection rate and death rate in the UK, the country has initiated a baby move this week to reopen its economy this week, with nonessential reopening of production. However, the government continues to struggle to clarify and simplify its “stay alert” message, as many workers are trying to return today.
The UK and the EU, meanwhile, are in the next round of trade talks. The UK government has continued to insist that the UK will not postpone its membership of the transition to Brexit from the Customs Union and the EU’s single market by the end of the year. The UK has until July 1 to commit to this, so the pressure is on negotiators. Markets continue to take into account the risk of the UK leaving the EU at the end of the year without a new trade deal, as many analysts see that there is not enough time to negotiate a new deal, even though both sides are starting to be perfectly equal.
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Chief Market Analyst
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