On Tuesday, the British pound hit a five-month low against the dollar at 1.3571. At the end of the session, the quotes rolled back to the price value of 1.3615.
The main reason for the pair's fall was the growing demand for the dollar against the background of a global surge in diseases in the world, which makes investors nervous. Concern among participants at the beginning of the week caused a sell-off in stock markets and an increase in demand for bonds and protective assets, which triggered a sharp decline in the exchange rates of risky currencies associated with economic growth, such as the pound.
Initially, one of the most profitable currencies among the G10 countries this year, against the background of the British vaccination program, has been losing ground in recent weeks in favor of the actively growing dollar. On Tuesday, the British currency also suffered from soft comments by a member of the Monetary Policy Committee, Jonathan Haskell, who prefers to refrain from tightening. Inflation in the UK is growing stronger than expected, the country's economy has fully opened, so some investors expect a reduction in the quantitative easing program. At the same time, it is unlikely to expect action from the Bank of England, while a new wave of the pandemic again threatens the economic recovery. In addition, the problems of Brexit continue to put pressure on the pound. The EU and the UK are still in conflict over the Northern Ireland Protocol and are unlikely to reach a compromise in the near future.
In our forecast, we expect a decline in the Pound/Dollar exchange rate to the levels of 1.3550, 1.3525 and 1.3500.