The volatility of the British currency increased at the end of last week. The quotes of the pound/dollar pair fell to the support level of 1.4100. The pound fell to a one-month low against the dollar on Thursday after Britain and the European Union failed to agree on solutions to trade problems in Northern Ireland. The two countries exchanged threats last week in a standoff that could overshadow an international summit hosted by Britain.
The pound fell sharply in value after the Vice-president of the European Commission, Maros Sefkovic, said that the European Union is considering filing a lawsuit against the UK over its actions in Northern Ireland. In theory, this conflict could lead to a lawsuit by the fall or the possible introduction of tariffs and quotas. Brussels accuses London of failing to check some goods being moved from the UK to Northern Ireland, and has launched a legal challenge to the British government's unilateral extension of the grace period. British Prime Minister Boris Johnson said that he is optimistic about negotiations with the EU on a solution to the trade conflict and on the issue with Northern Ireland. The Prime Minister also added that this dispute will not overshadow the upcoming summit of the G7 leaders. But currency quotes reacted with distrust to the words of the prime minister. The pound continued to fall on Thursday and reached its lowest level against the dollar since May 14. Analysts also noted that the increase in the number of cases of coronavirus is again putting pressure on the pound, as it may delay the recovery of the British economy.
MUFG Bank still sees the idea of opening a long position on the pound/dollar pair from the level of 1.4175 with a target of 1.4585 and a stop loss at 1.3950. The bank maintains a positive outlook for the pound and does not believe in delaying the lifting of the full lock in the country at the end of June. At the same time, analysts see serious risks for the national currency due to trade tensions between the EU and the UK. The bank said monthly GDP data for April showed a strong rebound as the country's economy reopened and trade deals with Australia and Norway were announced. Even if the last stage of lifting the quarantine is temporarily postponed, the economic effect of this action should be minimal. Market attention will be focused on the growing tensions between the EU and the UK over the implementation of the Northern Ireland protocol, but MUFG Bank again does not expect a strong negative impact on the pound.
The financial data also looks favorable, as the Bank of England's indicators show strong demand for British securities. Earlier it was reported about the increase in Japan's appetite for UK debt. The Bank of England's latest publication also shows that demand for sovereign debt from foreign investors remains high. Data for April showed that investors bought securities worth a total of 11.3 billion pounds, and this is a record volume in annual terms. The cumulative speculative position on the pound also remains long, which means that there is demand for the British currency.
Pound/Dollar Forex signals and levels
In the forecast, the Pound/Dollar exchange rate is expected to decline to 1.4080, 1.4060, 1.4030, 1.4000 and 1.3970.