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Business / Finance

GBP/USD: the dollar retreated, but promised to return

Analytical reviews Forex 20.03.2020 at 17:13

Daily analytical reviews of the Forex market from InstaForex company

On the last trading day of the week, the dollar retreats "on all fronts": the dollar bulls were unable to hold their ground at yesterday's levels. The market needed a correction, but a fundamental background throughout the week fueled the hype around the American currency. And just today, the dollar bulls have loosened its grip – almost all pairs grinbek became cheaper.

the Correction now showing all us dollar pairs, but most brightly it is expressed in pound-dollar. The British currency this month showed a record volatility over the past week and a half she "walked down" more than a thousand points, falling from 31-figure to today's low 1,1414. Today, the pair gbp/usd also puts certain records – updating the multi-year price low, the pair rebounded almost 500 points up, using the weakness of the dollar.

However, the weakness of the dollar is not the only reason for such a powerful correction. Yesterday the Bank of England has given traders hope that the British economy can wait "times of troubles". Let me remind you that the British regulator has lowered the interest rate to 0.1% per annum (which is the lowest level in history) and launched the "printing press", expanding the asset purchase program to 645 billion pounds. On the eve of a similar programme launched by the European Central Bank and the regulator will be until the end of the year (and possibly more) to the market to buy government and corporate bonds for a total amount of 750 billion euros. This program will complement buying by 20 billion euros a month, which the Central Bank held from September of last year. Also today it was reported that the German authorities have agreed on a supplementary budget in the amount of 150 billion euros – this money should help the economy to cope with the consequences of the spread of coronavirus.

Such a large-scale pumping of the financial system liquidity calmed the markets. The dollar ceased to use such a crazy demand, and this fact allowed the bulls gbp/usd to seize the initiative on the pair.

in addition, the us currency today she was under pressure. As you know, yesterday the Governor of California ordered the introduction of strict quarantine for all residents of the state – due to a sharp increase in the number of patients. Yesterday was a record for the country in the context of the spread of coronavirus – if in the daytime the number of infections has reached 10-thousand mark, then at midnight, the figure was over 14-thousand level. Covid-19 emerged in all States of the country.

Now 40 million California will have to stay at home, fulfilling the requirements of the quarantine regime. This is the first so a strict limit that was imposed across the whole state by order of the Governor. It came into force yesterday evening and will remain in force "until further notice". The quarantine has affected the manufacturing sector – for example, Tesla has announced that as of March 23, suspends production, not only in California but in the factory in Buffalo, which is located in the state of new York. In addition to Tesla, production on the American continent also suspend General Motors, Ford and Fiat Chrysler. In addition, the States finally lowered the "iron curtain" – today the United States cease to provide a standard visa services in all embassies and consulates of the country. Also completely closed the border with Canada and Mexico.

Sharp surge in the incidence Covid-19 in the United States is concerned by the dollar bulls. Rigid quarantine in California, only reinforced this concern – after all, if similar measures will be introduced in other States of the country, it could have a significant impact on the economy (even taking into account state support). All these reflections on the last trading day of the week has led, apparently, to massive profit – taking- traders do not risk to leave trades open over the weekend.

it is Also worth noting that the key indices of wall street today opened in positive territory, although further growth attempts look very insecure. Nevertheless, after the opening of trading, the Dow Jones Industrial Average S&P 500 and the Nasdaq Composite gained 0.8% -1%.

Thus, a dollar today was under a certain pressure: a surge in the incidence in the United States, strict quarantine in California and the notorious "Friday factor" allowed the pair gbp/usd and many other dollar pairs to go to the correction. However, to stand up against the us currency is now extremely dangerous – all these factors can have a short-term effect, as investors continue to consider grinbek as the main protective asset. Therefore, a long position on the gbp/usd is risky, but sales is advisable to open on Monday, assessing the impact of those events that will occur on the weekends.

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