The British currency is depreciating against the US dollar for the seventh day in a row. Declines began from 1.3200 to the currently observed area of 1.2000. The scale of the move is therefore very significant, and 1.2000 may be crucial for the GBP/USD pair.
It seems that the pound tried today to stop the recent downward trend after information about the announcement of a new stimulus package for the economy by the UK government. However, the rebound is very short-lived for now. Boris Johnson's administration has announced a massive loan and subsidy rescue package for companies. The package amount is 330 billion pounds. However, if around 1.2000 wasere defeated, the GBP/USD would be at a level that has not been since the 1980s, because the low set after the Brexit referendum could be broken.
Since the beginning of the year, the British currency has lost almost 10% against the US dollar. The pound next to the New Zealand dollar and the Australian dollar is the weakest among the major currencies in the world.
The controversial approach of the British authorities to the situation related to the epidemic may be at this moment crucial for maintaining the prices of British assets. In the UK, unlike other countries, authorities assume that most people will become infected anyway. Therefore, they try to "control" the dynamics of infection growth in an appropriate way, so as not to overload the healthcare system. Great Britain is trying to develop immunity in the majority of society so that it can get infected just like a cold or flu and as a consequence most will also become resistant to coronavirus. However, this may also have very negative effects in the form of increased mortality, but Prime Minister Boris Johnson informed this frankly and openly.
Nevertheless, you must also remember what may additionally affect the strengthening of the US dollar. On Wednesday we observed its appreciation because investors and companies seem to be looking for liquidity and are turning towards USD. In addition, investors still seem to run away from more risky currencies. They also welcomed the US Donald Trump administration's stimulus plan of $ 1 trillion, which includes direct payments to Americans, deferred taxes, and targeted assistance.
Daniel Kostecki, chief analyst at Conotoxia Ltd. (Forex Cinkciarz.pl service)
The above comment is not a recommendation within the meaning of the Regulation of the Minister of Finance of October 19, 2005. It has been prepared for information purposes and should not be the basis for making investment decisions. Neither the author of the study nor Conotoxia Ltd. are responsible for investment decisions made on the basis of the information contained in this commentary. Copying or reproduction of this document without the written permission of Conotoxia Ltd. is prohibited.
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