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22.11.201911:22 Forex Analysis & Reviews: What is preventing the pound from continuing its rally?

Long-term review

Exchange Rates 22.11.2019 analysis

After rising 5.3% last month, which turned out to be the largest since 2009, the GBP/USD pair was stuck in the range 1.2770–1.2970.

According to experts, the sluggishness of the pound has a direct reason: the British currency has already shown a stellar rally, rising by more than 8% from the three-year low of September. This means that most short-term traders are still satisfied with profitability.

Although Brexit's threat has virtually disappeared without a deal, some analysts remain concerned that the weakening British economy and the prospect of complex trade negotiations between London and Brussels might restrain the strength of the pound.

The risks associated with early UK elections next month (especially the prospect of a "suspended" parliament or a coalition led by the Labor Party) are also seen as obstacles to the pound.

However, most preliminary polls about who wins the election indicate a stronger pound. This circumstance allows leading banks to issue "bullish" forecasts for the pair GBP/USD. Therefore, Bank of America Merrill Lynch promises a rally of almost 8% in response to the victory of the Conservative Party, which will end the impasse of Brexit. On the other hand, Morgan Stanley does not exclude the rise of GBP/USD to 1.4 in the first quarter of 2020. JP Morgan, in turn, expects to see the pair at 1.33 by the middle of next year, while Goldman Sachs believes that the pound will increase in price to $ 1.35 in a few months.

It should be noted that large banks are often mistaken in their forecasts. What is the recommendation of BofA Merrill Lynch at the end of 2017 to buy a pound, which in fact declined by 6% in 2018. However, if we assume that things will go towards an orderly Brexit, and the "bulls" on GBP/USD will be able to hold quotes above 1.2720–1.2760 until the middle of next month, the chances of continuing the rally to 1.35 will increase by leaps and bounds.

Viktor Isakov,
Analytical expert of InstaSpot
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