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π¬π§ Future without optimism: the pound is preparing for a correction
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π₯ The British currency steadfastly takes all the blows of fate. In the second half of last year, the pound gained more than 20 figures on the back of the Fed's policy easing and inflation slowdown in the US. But this factor has already been taken into account by the market - what next?
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Rishi Sunak started a political game with the issue of Northern Ireland. He is trying to convince European leaders that the deal is agreed upon on a technical level, although he has yet to convince the DUP and conservative Brexit supporters.
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Another problem for Britain was the American law to reduce inflation: London found itself in conflict between large trading players and protectionist policies. The UK cannot compete with US and EU environmental subsidies, so it has to use diplomacy to protect UK companies on both sides.
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The outlook for the pound in the next few weeks is unequivocal - a decline. The bearish trend is reinforced by the negative outlook for the British economy, which has not yet recovered from Brexit and the pandemic. The most gloomy forecasts do not seem to come true, and the recession in the UK will last not 2 years, but only 5 quarters, but the market still does not understand where it can draw optimism from to maintain high demand for the pound.
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The UK economy, according to Andrew Bailey, will lose no more than 1%, but inflation is already declining in the EU and the US, but not in Britain. The British regulator has already raised the main rate 10 times, but there is no positive in the price dynamics yet. And if the head of BOE is seriously mistaken?
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If the BOE sacrifices the economy and keeps raising rates by 50 basis points until inflation starts to fall, then such a move will support the currency this year. The pound is still in the danger zone of historical lows. Now everything depends on the decisions of the FRS and BOE in March, as well as on inflation reports.
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Profits to yβall!