November 16, 2015

Great British pound/US dollar - is one of the most popular instruments in FX market. The volume of transactions with this pair steadily makes approximately 12%, and GBP/USD steadily takes the third place in global hierarchy of currencies in terms of liquidity level. Another factor determining its popularity among traders is its high volatility providing an opportunity to make solid profit even on short-term transactions.

Statistics of recent years show extremely high sensitivity of this pair to fundamental factors, which include not only statistics on British economy condition and decisions of Bank of England, but also similar data from Europe and the USA. Significant swings of the British pound rate may also cause statements of European officials and their overseas colleagues.

The abovementioned was proved by the most recent events, when the pound fell almost instantly, by Forex standards, against the greenback more than 350.0, just during two days - November 5 and 6.

Of course, it was not the "Black Thursday" of Swiss franc like it was on January 15, 2015, but still such volatility is a serious reason to talk about what’s possible to expect from the pound during the next months. For this reason November 5 has already got its name as the British "Super - Thursday".

GBP/USD is considered to have positive correlation with  EUR/USD and negative correlation with USD/CHF but if we take a look at the charts of these currencies, it will be evident that this dependence has been breaching increasingly, and it may indicate that the Bank of England doesn't want to perform as the third violin in the orchestra any more, and that it prefers doing solos.

So, Mark Carney heading this reputable institution had literally shocked the market with target figures of the monetary policy this summer.
Now the Bank interest rate is at extremely low level – 0.5%, and it was widely expected that with improvement of figures of the British economy it will be increased.

Considering the current rates of economic growth (country’s GDP had increased in the second quarter as opposed to the first one by 0.7%), many experts believed that the Bank of England would significantly increase the rate before 2016, but in the interview with Bloomberg agency M. Carney said that such step would be premature.
"Forecasts for the country’s GDP growth were downgraded. The forecast for inflation rate was also changed, and now the Bank of England considers that the target rate at 2% will be achieved even not in 2016, but in 2017, - said the leading analyst of NordFX broker company John Gordon. - That is what caused disappointment of the market, which had decided that the long-awaited rate hike could be delayed for a year, and even more".

At the same time many experts consider expectations of the Bank of England to be too pessimistic. With the problems of the eurozone countries, Russia and China, the economy of Foggy Albion is distinguished by stability of economic indicators - GDP has been growing for 2.5 consecutive years, unemployment reached its low since 2008, the wages level is the highest for the last 6 years. The Prime Minister David Cameron even said that the actual indicators of growth had exceeded all expectations, which gives us reason to be optimistic. But... at the same time the rate still remains at the level of 0.5% that is largely attributed to defending against external threats of Great Britain economy. First of all, Greece debt crisis and slowdown of China economy growth are among them. And oil price, of course, has its impact on sterling rate.  

As to the outcome of "Super - Thursday", experts of Deutsche Bank have already recommended the clients to fix profit on pound/dollar long positions opened in March and on euro/pound short positions. According to the German bankers, the Monetary Policy Committee of the Bank of England has given a clear signal that we shouldn't expect the rate hike during the first half of 2016.

"It is interesting that two years ago – in November, 2013 - we knew that the Bank of England would begin policy normalization until the second half of 2016, - said J. Gordon from NordFX. - At the same time there had already been disputes about who would give up first and change its policy – the Bank of England or the Fed. Last time the Federal Reserve System increased its rate in summer of 2006. Then the regulator gradually started to reduce it until it reached its low of 0-0.25% in December, 2008. At the end of October of this year the U.S. Fed once again left the rate on hold at the same low. But the head of the Federal Reserve Bank of San Francisco J. Williams didn't exclude the rate hike until the end of 2015".

So far Deutsche Bank expects that pound/dollar rate may fall to 1.2700 by the end of 2016 and to 1.15 by the end of 2017. As for EUR/GBP, analysts of Goldman Sachs still consider that euro will drop faster, and within the next 12 months the rate will reach the mark of 0.65.

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