On Friday, the national currency of Great Britain advanced against the US dollar, following a short pause and a downward correction. However, the pound is still at risk of falling. Even a slight rise in the US dollar will negatively impact the sterling.
In the morning session, the pound remained almost unchanged amid low market activity. Investors were not very interested in the sterling, so it was hovering near one level. Thus, the price consolidated around $1.3067 per pound. Against the euro, the pound settled at 90.35. However, if we evaluate the currency dynamics over the past three months, the progress is obvious. The British currency has appreciated against the dollar by almost 7%. This success is largely attributed to the weakness of the American currency.
During the summer, the trading activity is usually rather low, whereas the market of bonds and securities attracts more interest. This week, the US Treasuries yields reached their high due to the huge volume of emission.
Next week, market participants will focus on inflation data and retail sales in the UK. According to preliminary estimates, both indicators will be below the previous level. The question is how steep this fall will be. However, the contraction will anyway put serious pressure on the monetary policy which is likely to weaken further.
In the meantime, the epidemiological situation in the world is also getting worse. So, amid a new wave of coronavirus cases, the authorities of some countries have introduced mandatory quarantine for those residents who return from vacation. In particular, this decision was made by the UK government. Now tourists returning to the UK from France, Malta, and the Netherlands should remain on a lockdown for some time. This list includes the countries with the highest outbreak of COVID-19. Of course, now the tourism sector is facing the biggest challenge ever, and investors will sooner or later react to this.
Yet, Great Britain is unlikely to withstand another blow to its economy. The UK GDP has already dropped sharply by 20% in the second quarter of 2020. And in mid-fall, the initiative to prevent mass layoffs ratified by the government will expire. So far, massive layoffs in the country were capped only thanks to this program. The situation may deteriorate after the program is canceled.