GBP/USD can be up to 1.32 and 1.37 in the middle- and long-term

The British pound is fluctuating between burning up and freezing now. Investors are so focused on the policy matters that ignore macroeconomic statistics. According to Nomura, an increase in the UK services PMI, which covers about 80% of the UK GD, to 54.4 in August, from 53.5, indicates the growth in the British economy by 0.5% Q-o-Q in the third quarter. It is quite a good result; however, this fuss around Brexit doesn’t let the pound get full use of the positive. Another matter is the news that Germany is willing to accept a vague Brexit proposal from the UK, which has increased the chances to get final deal done, sending GBPUSD up towards the psychologically important level 1.3.

Taking into account that the GBP speculative short positions hit the record high since May, 2017, the pond sharp surge is not surprising. The market has been including the negative of no-deal Brexit into the pound value for quite a long time. As soon as good news had come, the bears had to give up. It is remarkable that investors’ pessimism contrasts with the opinions of more than fifty experts, interviewed by Reuters. They say the chances Britain will leave the European Union without a deal are one in four. In case it occurs, GBPUSD is to be 8% down, according to the median forecast. The most negative expectations suggest 15% drop. In general, economists are quite positive about the pound’s middle- and long-term outlook, suggesting its value rise up to $1.32 and $1.37 in six and twelve months. The median forecast suggests the pound will be at $1.28 in a month. The range of views is rather wide: $1.2-$1.41 in six months and 1.226-1.51 – in a year; it is associated with uncertainty around Brexit.

Dynamics of GBP speculative net positions  

So, the British pound still much depends on the policy matters. Lack of the deal with the EU is seen as the worst scenario. Even in case of the hard Brexit, the Bank of England won’t necessarily increase the Bank rate, because an increase in import prices and the inflation rate due to the pound revaluation is likely to be temporary; however, the no-deal Brexit, according to many economists, will result in a crisis. They suggest the examples of Argentine and Turkey, whose central banks had to resort to aggressive monetary restrictions.

In my opinion, if London and Brussels manage to reach an agreement during October-November period, GBP/USD will be actively using bullish drivers. Especially since the political uncertainty will increase in the USA due to the mid-term elections for Congress; and the fiscal stimulus effect will gradually fading out. Reuters still suggest the USD index should continue going up. The dollar pairs mostly include many factors, like the Fed’s monetary restrictions and an increase in the US GDP growth. Therefore, for the investors, who believe that the UK will settle down the problems with the EU, it makes sense to open GBP/USD long positions on the breakout of the resistance at 1.3025. 

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Price chart of GBPUSD in real time mode

Pound isn't willing to play its ace soon

The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteForex. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC.

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