The Organization for Economic Co-operation and Development (OECD) said that the UK’s economy is going to plunge by 11.5% throughout this year. Still, it could get worse if there were a second wave of COVID-19 infections. If this were to happen, the economy could compress further in the months to come leading to 2021.
Given the concerning projections, chancellor Rishi Sunak rolled out a new plan that is set to jump-start the economy by supporting jobs and businesses. The idea behind the fresh measures is to ensure that the “economic recovery is as strong and as swift as possible.”
The plan provides a clear path around protecting, supporting, and creating new jobs to boost the confidence of employers. But it fails to address how it will improve the day-to-day lives of the British people. In fact, there are no mentions regarding funding for public schools, transportation, and cultural amenities, such as museums, galleries, public parks, and others.
With lockdown measures easing in the UK, investors are growing hopeful about a further economic recovery. This sense of optimism was barely interrupted on Monday, July 13th, after the governor of the Bank of England Andrew Bailey said to be “very worried” about jobs across the nation. Following the banker’s speech, the Pound crashed by 1.47% to hit a low of $1.248 on July 14th, but investors’ confidence did not fade away.
The GBP/USD exchange rate has been able to recover since then surging over 1.70% to trade at $1.272 as of July 23rd. While Sterling seems to have more room to go up, there is a massive resistance barrier sitting ahead of it. The Pound must break through $1.275 to retest June 10th high of $1.281 or even reach the next hurdle at $1.301.
Given the uncertainty around Britain’s economy, investors might be able to hedge against potential risks with Bitcoin. The flagship cryptocurrency recently moved past the $9,400 resistance wall and made a higher high for the first time since June. If the buying pressure behind BTC continues to rise, it would likely take another shot at the infamous $10,000 hurdle. Moving past this area of resistance increases the odds for new yearly highs.
Everything will depend on Bitcoin’s ability to stay above the $8,900 support level.
Expectations Grow Around the Pound
Sterling was able to recover strongly following March’s market meltdown. The new fiscal stimulus recently announced and hopes for a vaccine against COVID-19 also seems to have helped propel the Pound higher. While the risks of Brexit talks and rising tensions with China are still relevant, GBP might be able to weather the storm against the US dollar.
Given the current economic outlook with the Federal Reserve adding more liquidity into the market, traders must watch out for the $1.275 resistance level since it may allow the Pound to advance further. If sell orders begin to pile up, however, Sterling might retrace to $1.253.
Under such circumstances, the two crucial price hurdles ahead of the Pound are the $1.275 resistance and the $1.266 support level. Moving above or below these critical price levels will determine where the GBP/USD exchange rate is headed next.
For a look at all of today’s economic events, check out our economic calendar .
Konstantin Anissimov, Executive Director at CEX.IO
This article was originally posted on FX Empire
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