- British Pound Winning Streak
- 300 Billion Pound Shortfall
- Britain-China Spat
The British Pound (GBP) remains resilient, in the forex market, after rising to three-month highs against the dollar amidst a gloomy outlook. The Pound has been on a winning streak in recent weeks, benefiting mostly from a weakening dollar that has come under pressure as the global economy bounced back from the COVID-19 fallout.
The GBP/USD raced by more than 0.3% in Friday session touching highs of $1.2689 at the back of a five-day winning streak. The rally came as the U.S dollar continued to weaken across the board ahead of the release of the Non-Farm Payroll later in the day.
Amidst the gains, the Pound remains vulnerable as the BREXIT uncertainty continues to ravage the market. The Pound’s momentum in recent weeks has come at the backdrop of growing optimism that the U.S will reach an agreement with the EU to avoid a no-deal BREXIT outcome.
However, it is the concern that the economy could take much longer to recover from the COVID-19 pandemic that threatens to take a toll on Pound strength in the Forex market. The country’s budget Watchdog has already warned that it could take as much as 132.5 billion Pounds and not 123.2 billion Pounds to soften the economy hit hard by the pandemic.
In addition, the British economy is staring at a 300 billion Pound hole in public finances due to loss of tax revenues as the economy came to a halt at the peak of the COVID-19 pandemic.
A diplomatic row with China over Hong Kong is also emerging as a potential tailwind that could take a toll on the Pound strength. Two British Banks have had to distance themselves from Prime Minister Boris Johnson’s remarks over proposed China’s security law on Hong Kong on fear of rebuttal from Beijing.
Looking ahead, Pound’s five-day winning streak will come under pressure as the U.S reports the Non-Farm Payroll report for May. The report is expected to show the economy lost 8 million jobs in May compared to a 20 million loss in April. The unemployment rate is expected to come in at 19.8% compared to 14, 7% as of April. A better than expected report could result in the strengthening of the dollar conversely sending the GBP/USD pair lower.