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Pound price forecast 1 July 2021 | GBPUSD and GBPCHF Fundamental analysis

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The return of investor interest in the US dollar makes GBPUSD purchases extremely dangerous, but the pound may rise against other currencies. Let us discuss the Forex outlook and make up a GBPUSD and GBPCHF trading plan

Monthly pound fundamental forecast

Successful vaccination, the associated expectations of strong economic growth and earlier rate hikes by the Bank of England compared to the Fed had a positive effect on the British pound for most of 2021. Only the change in the Fed’s outlook in June forced the GBPUSD bulls to close long positions, which led to the pair’s correction. The US dollar is regaining its credibility. However, the sterling is no worse than the USD.

Hardly anyone would argue that the UK economy is seriously inferior to the US one. The labor market is recovering faster than the US, with the Bank of England forecasting 7.25% GDP growth in 2021 compared to the 7% GDP expansion expected by the Fed. Inflation in the US is still accelerating more actively than in the UK. However, BoE chief economist, Andy Haldane, warns that it could grow to 4% by the end of the year. This figure is double the target and more than the central bank’s forecast of 3%.

London does not lose to Washington in terms of the speed of vaccination and the inflow of investments. In the UK, 49% of the population has already received both doses. In the US the figure is 46%. Goldman Sachs expects capital inflows to ETFs targeting US securities in 2021 to reach $500 billion. BofA Merrill Lynch notes that the balance of portfolio investments in the UK in the first quarter alone amounted to £120 billion. According to the bank, due to successful vaccination and political risk mitigation after the successful resolution of the Brexit problem, there is currently a high demand for UK assets from foreign investors. British investors, in turn, sell foreign shares and transfer capital back home. This solves the problem of financing the UK’s current account deficit.

Dynamics of the UK current account

   

Source: Reuters.

Yes, the pound has problems from time to time, as in the cases of the “sausage war” or the postponement of the full opening of the economy, but the difficulties are temporary. The extension of lockdowns will slow down GDP in the third quarter but accelerate it in the fourth.

If the greenback has no advantages over sterling, why is GBPUSD falling? In my opinion, there are two reasons. First, there are far fewer hawks in the MPC than in the FOMC. After Andy Haldane leaves his post, they may not remain at all. At the same time, already five representatives of the Fed have mentioned 2022 as the year of the first rate hike. Secondly, the GBPUSD price included the expectations of a tightening of the Bank of England’s monetary policy next year, while the expectations of the Fed’s monetary restriction were not. Their change is a reason to sell the pound against the US dollar.

GBPUSD and GBPCHF trading plan for a month

In my opinion, the growth of greenback on Forex will continue. Especially if the US employment data for June are favorable. This circumstance increases the risks of GBPUSD falling in the direction of 1.365 and 1.35. At the same time, sterling can be bought against currencies, whose issuing central banks intend to adhere to ultra-easy monetary policy for a long time. GBPCHF long trades with targets at 1.3 and 1.315 look interesting.

    

 

Price chart of GBPUSD in real time mode

The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteForex. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC.

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