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It is quite unexpected that the Bank of England forecasts a double-dip recession in the British economy, expansion of monetary stimulus by £150 billion, new restrictions due to the coronavirus, and the strengthening of GBPUSD by 1.6% since the beginning of November. Nevertheless, over the past few years, the pound has accustomed us to paradoxes. It often ignores the economy and goes to the call of politics, and it is difficult to imagine a better political driver for dollar pairs than the announcement of the results of the US presidential election.
A Joe Biden victory and a divided Congress is probably the best option for US stocks and global risk appetite. Yes, investors will probably not get a quick and large-scale fiscal stimulus, but they will also have to wait for higher taxes and tougher regulation of technology companies. In addition, Biden is likely to be more loyal to China than his predecessor, which is good news for international trade, global GDP, and risk appetite. Against this background, it is not surprising that safe-haven assets came under pressure, which supported the GBPUSD bulls.
A tailwind from outside pushes the pair's quotes up, while the situation in the British economy leaves much to be desired, which, along with the swampy political landscape, keeps pound fans from active attacks. At the November meeting, the Bank of England increased the scope of QE from £745 billion to £895 billion, and the Treasury said it was extending the holiday support program until March, which Bloomberg estimates will cost it another £25 billion. Rishi Sunak said that the double introduction of incentives shows that both economic and monetary institutions have a role to play in overcoming the crisis. Andrew Bailey said it was crucial that we took swift, decisive, and coordinated action.
The Bank of England predicts that Britain will face a double-dip recession in the fourth quarter: GDP will drop by 2% and begin to recover in January-March. The current estimate is lower than the previous one, which, along with additional monetary stimulus, could be interpreted as bearish news for sterling. Nevertheless, there are always two currencies in any pair, and the dollar sell-off played a role in the growth of GBPUSD.
Bank of England forecasts for UK GDP:
It should also be noted that the BoE did not hint at the introduction of negative rates and is quite optimistic about inflation, which supports the pound. However, the GDP forecast is based on the fact that London and Brussels will find a common language on Brexit. And there are certain difficulties with this.
Earlier, Britain and the EU argued that November 15 is the deadline for concluding a deal because it must be ratified by parliaments by the end of the year. Negotiators have very little time left, and this fact, coupled with the release of British GDP for the third quarter, allows the pound to claim the role of the most interesting currency of the week.
Technically, an expanding wedge pattern was formed on the daily GBPUSD chart. The rebound from the supports at 1.312, 1.3065, and 1.3025 should be used to form long positions.
GBPUSD daily chart:
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