Market Overview

11 February 2020

The Pound May Rebound on Positive Economic Perspectives

The British Pound fell under pressure since December Parliament elections in the United Kingdom from 1.34 to 1.29 in February 2020. The Pound lost 2.5% last week only as investors fear inappeasable British Prime Minister Boris Johnson with his tough stance with the EU after Brexit could not make a trade deal with EU by the end of 2020.

However, the positive signs of economic recovery in the UK came with the GDP statistics released on Tuesday. British GDP rose 1.1% year-on-year in 4Q2019 that beats the forecasted 0.8% but lower than the previous figures of 1.2%. Although industrial output in the UK is not the major driver of the GDP the fall of 1.8% year-on-year in industrial production in December 2019 was much less than the previous revised 2.5% in November. Manufacturing fell just 2.5% year-on-year in December 2019 compared to 3.3% a month before.

The other interesting fact to consider that the trade balance left the negative zone for the first time since 1985. Moreover, the trade balance of 0.85 bln pounds excluding the EU countries was 6.72 bln pounds. That could mean Britain has an extra room to develop trade operations unbound to the European Union.

Those positive developments may result in eventually brighter perspectives of the British economy one could suggest. The Pound responded with a moderate upward movement after the data was released. Together with the strong upward trend since September 2019 the recent correction may have reached the end. The technical picture indicates the Cable may rebound from its local lows at 1.2820-1.2900 to 1.3050-1.3100. In alternative scenario the strengthening US Dollar may drag the Pound to 1.2830-1.2850, which may lead to a further decline to 1.2750.

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