The GBP/USD currency pair is tracking a slightly softer course on the charts, according to analysts at Scotiabank. Net losses yesterday and firm resistance around the 1.22 zone have left the pair struggling to gain momentum today.
While intraday gains have been seen, they have been capped around the 1.21 level, which is now considered minor resistance. Analysts expect that a retest of the 1.2000/05 zone, which represents the 50% retracement of the March rally, may develop from here.
Factors Contributing to the Decline
There are several factors contributing to the GBP/USD’s decline, including concerns over Brexit, the COVID-19 pandemic, and economic uncertainty. The ongoing negotiations between the UK and the EU regarding their post-Brexit relationship have led to significant uncertainty for the British economy.
Additionally, the COVID-19 pandemic has had a significant impact on the UK economy, with the country experiencing multiple lockdowns and restrictions that have led to decreased economic activity. This has put pressure on the pound, as investors worry about the UK’s ability to weather the economic fallout from the pandemic.
Finally, there is general economic uncertainty in the UK and around the world, with many investors uncertain about the future of global economic growth. This has led to a flight to safety, with many investors choosing to invest in safer assets like the US dollar, rather than riskier assets like the pound.
Near-Term Outlook for the GBP/USD
Despite the challenges facing the GBP/USD, there is reason to believe that the pair may experience some gains in the near term. The UK economy is showing signs of recovery, with GDP growth of 0.4% in February and the successful rollout of COVID-19 vaccines.
Additionally, the US economy is facing its own challenges, including a slow vaccine rollout and concerns over inflation. This could put pressure on the US dollar, potentially leading to some gains for the pound.
However, there are still significant risks to the GBP/USD in the near term. Ongoing negotiations between the UK and the EU could lead to further uncertainty, while the global economic outlook remains uncertain.
The GBP/USD currency pair is expected to continue its decline in the near term, with analysts predicting that it will challenge the 1.2000/05 zone. While there are some signs of recovery for the UK economy, ongoing uncertainty and economic challenges could continue to put pressure on the pound. Traders should monitor key economic indicators and news events for signs of a potential reversal in the pair’s fortunes.