Just a month ago, clouds were gathering over the British pound. The first of these involved a no-deal Brexit. The second with the rapid spread of a new strain of coronavirus, threatening to cut the UK off from the outside world completely. We have covered this in detail in our newsletters. Today, the situation is very different.
The UK has managed to break peacefully with the EU. And the problems with the new coronavirus stamp are offset by the rapid vaccination rolled out by UK health professionals. Yes, the situation is critical now, in terms of filling hospitals with patients.
But investors are always looking ahead. And they hope that after the summer decline, the third wave of coronavirus will not come in the autumn. As up to 50% of the country’s population will be vaccinated.
Let’s look at the pound/dollar pair over the last 20 years. To do this we have taken the monthly timeframe and zoomed out on the chart. Visually, the price seems to be positioned very low compared to the average price levels over the years. However, it is already 22 steps higher than the lows shown last spring.
If there is a global reversal in the pair, the first target, already this year, is the 1.5 level. What could push the British pound towards that? Of course, the UK’s exit from the EU. And throwing off the chains of European bureaucracy, with which English business has been tightly wrapped.
This applies to the labour market, tariffs, taxes, trade rules, etc. That said, investors are not even looking at 2021, which will still be a failure because of the pandemic. But for the next 2022 and 2023, when economies around the world will begin to recover quickly.
And the main expectation of investors is that UK GDP, as well as the incomes of its citizens, will start to grow much faster than their EU counterparts. And this will provide a massive transfer of money from the euro to the pound sterling. In addition, inflation should force the Bank of England to raise rates earlier than in Europe, pushing up demand for the pound even more.
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