Mar 22, 20201 min read

GBP FUNDAMENTAL OVERVIEW

Updated: Mar 22, 2020

GREAT BRITISH POUND (GBP) – SWING TRADE

Sterling rallied on Friday following an excess of central bank actions to stabilize global markets. Despite the fact that it suffered heavy losses previously which led it to set a new 35-year low against the U.S Dollar. Large parts of the economy stood still currently due to coronavirus containment measures. The new low has triggered fresh buyers at the 1.450 level which indicates that the downtrend is now to halt itself and this could mean a period of consolidation is likely.
The British government has ordered the closure of pubs, cafes and restaurants in the hope of slowing down the spread of coronavirus. These measures will cost the economy dearly, thus Chancellor Rishi Sunak has announced financial support for affected companies. 80% of wage bills will be covered by the government and payments of VAT will also be deferred. These measures will have an impact on the budget deficit.
I do believe that the GBP has not yet bottomed despite falling to 35-year lows against the USD. It could possibly become even more undervalued if there is a further deterioration in financial market conditions.
Efforts to cover wages and the total cost of corona-virus related spending up to £110BN or 5% of GDP that will lift the budget deficit sharply.