Market analysis

The Pound’s Two-Week Decline

The British Pound has recently shown a two to three weeks decline depending on the currency pair. The movement in recent weeks has taken the asset to price lows not witnessed since early July 2021. Traders are now questioning what is straining the price of the currency and whether this is likely to keep hold in the longer term or whether the movement will lose momentum.

Looking at the price action and technical aspects of the market, we can see indications that the movement is losing speed and witnessing more frequent pullbacks. However, it is also vital to ensure fundamental influences will not again provide support for counter currencies and opposing factors.

The price of the GBPUSD grew to 1.3740 but the potential for further growth was limited, as the situation in the British economy is complicated according to economists. The bullish movement has been mainly prompted by the devaluing US Dollar but has since again moved against the Pound. Last week, the Confederation of British Industrialists (CBI) reported a significant increase in retail sales for August. The index climbed to 60 points, the best since 2014, supporting the Pound. But the increase in demand has led to a new problem: a decrease in inventories in retail chains, the volume of which is now at its lowest since the 1980s.

The reason for this situation was supply chain disruptions due to the coronavirus pandemic. Further decline in inventories could negatively affect sales and slow down the British economic recovery. Experts see the second problem as a lack of qualified personnel, which can no longer be recruited in the EU due to Brexit, and enterprises are forced to reduce production and service volumes. In general, GBP does not look strong in the medium term.

Hays plc and the Furlough Scheme

One of the largest recruiters for the UK, Hays plc, has advised that the economy has witnessed a “dramatic” recovery in the employment sector including high levels of wage inflations and skilled worker shortages. However, even with some positive employment data, analysts have shown concern regarding the end of the Furlough Scheme. The support scheme which pays 80% of employee’s salaries is due to end next month.

The unemployment rate within the UK currently stands much lower than their main competitors. The rate has fallen from 5.2% in December 2020 to 4.7% in the latest month. However, as mentioned above, if the end to the Furlough Scheme negatively affects the unemployment rate, it can have domino effects on the rest of the economy. For example, the inflation rate could be influenced by employment figures.

UK inflation figures are also a concern for Pound traders. The inflation level in the latest month for the first time this year has shown signs of losing momentum and even weakening. In the latest month, the inflation level in the UK declined by 0.5% but traders will be strongly looking at August’s statistics eager to see whether the decline continues. If inflation declines and unemployment increases, the issue for the pound is that the Central Bank may look to delay altering the current monetary policy.

Other Pound Price Influences

Furthermore, no major fundamental news or events are due to be announced over the coming days from the UK and Britain also readies for a bank holiday weekend which will result in lower trading levels. However, the market will be closely monitoring the price action of the currency as well as the developments regarding coronavirus.

After a drop in cases during the later weeks in July, the figures are again starting to rise. The number of cases throughout the month has increased from 23,000 to 38,000. Officials confirm the situation remains under control and there is currently no need for social restrictions to be put in place. However, investor sentiment towards the currency may change if the cases do continue to rise going forward.

The past two weeks have been difficult for the Pound, but traders should keep in mind price volatility and smaller bullish trends. Over the last 24 hours, the currency declined against the US Dollar, Euro, and Japanese Yen, though it is vital to continue looking at the market developments and the price reaction as the trend and market sentiment may change.

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Disclaimer: This article is not investment advice or an investment recommendation and should not be considered as such. The information above is not an invitation to trade and it does not guarantee or predict future performance. The investor is solely responsible for the risk of their decisions. The analysis and commentary presented do not include any consideration of your personal investment objectives, financial circumstances, or needs.


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