Recent COVID-19 restrictions in the U.K. were the reason for the decline of the GBP/USD to the 1.3450 support level, after strong gains had it trading at the 1.3703 resistance level. The pair is settling around 1.3555 as of this writing. The UK has become the epicenter of the COVID-19 outbreak in Europe again. Many countries are experiencing new waves of the virus, but Britain is among the worst. More than 3 million people in Britain have tested positive for the coronavirus and 81,000 have died, with 30,000 in just the last 30 days. Thus, the British economy has contracted by 8%, more than 800,000 jobs have been lost, and hundreds of thousands of registered workers are unemployed.
Much of the blame for Britain's poor performance has been placed on the shoulders of British Prime Minister Johnson, who contracted the virus in the spring and ended up in intensive care. Critics say his government's slow response to the emergence of the new COVID-19 virus from China was the first in a series of fatal errors. Britain closed its doors on March 23, 2020, late than its neighbors, such as Germany.
A senior member of the Bank of England's Monetary Policy Committee gave a strong signal that negative interest rates in the UK may be on their way, a development that could be a major headwind for the British pound. The weak start for the pound continued in the second week of trading in 2021, after a speech by Silvana Tenryu, a member of the Monetary Policy Committee, in which she said that she believed that negative interest rates would be a positive development that could help the British economy under pressure.
In a speech at UWE Bristol, Tenreyro said her overall assessment is that "while we cannot have complete certainty, negative interest rates should potentially boost growth and inflation in the UK with high probability. Lowering the bank interest rate to a record low of 0.1% has helped ease lending conditions compared to the opposite reality (for not changing the policy), and I think that more cuts will continue to provide incentives."
A number of Forex analysts say that the British pound may be affected by the downturn in the future if negative interest rates are increased by the bank. HSBC analysts say the BoE February 4 meeting could be interesting. Currently, there are only two or three key points to lower prices for this meeting, and there is growing speculation about the possibility of announcing a rate cut.
Technical analysis of the pair:
Despite the recent correction of the GBP/USD, it still has a chance to stick to the upward trend, especially if it returns to stability above the resistance 1.3600, which is the closest now. According to the performance on the daily chart, there will be no real reversal of the trend without breaching the support level at 1.3275. Since the breach of the psychological resistance at 1.3000, the pair has been in an upward correction range. For the time being, the currency pair's gains will remain an opportunity to go short.
The pair does not expect any important economic data today from either Britain or the United States of America.
