Forex Trading with GBP/SEK: Is Sterling overbought?
The currency pair British pound against Swedish kronor has shown an upward trend (that the pound is getting stronger), but many believe that we see an overbought pound now and a crown that has the opportunity to become stronger again.
On Friday, the Swedish krona took a hit after data on a downturn in the Swedish economy was published during the fourth quarter of 2020. Data from Statistics Sweden, Statistics Sweden, show that gross domestic product (quarterly) fell 0.2 per cent during the fourth quarter of 2020 , compared with an increase of 4.9 percent during the third quarter of 2020. Compared with the same period in 2019, GDP decreased by 2.2 percent, which shows how the Coronavirus pandemic has affected the Swedish economy negatively.
However, Sweden seems to be able to avoid a recession, as other economic indices have shown improvements in recent months. Data also released on Friday showed that the increase in retail trade amounted to 3.4 percent, which significantly beat the forecasts for a decline of 3 percent.
As a result of the poor GDP data, the USD / SEK also rose, which allowed the pair to implement a delayed correction of prices after a weaker dollar has seen the pair fall by 17.4 percent since the pandemic began in April 2020.
GBP has risen on Brexit optimism but there are risks for 2021
Currency markets appear to be stuck in a sideways range during early trading on Tuesday, as reports of new restrictions in the US counteract Moderna’s breakthrough for the COVID-19 vaccine.
California Governor Gavin Newsom “pulled the emergency brake” to resume the state after registering the fastest increase in COVID-19 cases since the pandemic began. At the same time, Iowa has a mandate for public masking, and New Jersey has introduced new boundaries for indoor and outdoor social gatherings to limit the spread of coronavirus.
The United States registered more than one million new COVID-19 infections last week, adding to the recent increase in US virus cases. the total number of confirmed cases has now exceeded 11 million.
Nevertheless, although this is a good reason for investors to flee to the security of risk-agreed currencies, risky currencies outperform their foreign exchange counterparts. Even the British pound (GBP), which fell against a number of major currencies during this week’s trading, has recovered from low levels, mainly due to new Brexit optimism.
At 13:00 GMT, the exchange rate for the British pound to the euro (GBP / EUR) traded 0.1 per cent higher to 1.1163 EUR, while the exchange rate for the British pound to the US dollar (GBP / USD) has jumped by 0.3 per cent to USD 1.3262.
While risk sentiment declines, the weakness of the US dollar (USD) increases risk-on-currencies and the euro (EUR). At the time of writing, the exchange rate between the Euro and the US Dollar (EUR / USD) is 0.2 percent higher at $ 1.1878.
Brexit negotiations are still a key driver of the pound sterling (GBP) exchange rate, and although online trading is declining, investors seem confident that a deal can be reached between the UK and the EU. Traders flock to trade with the pound. Our tip is to shop through Swedish Skilling (review), which has BankID and is fully transparent. Try opening an account with Skilling today, completely risk-free.
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Analysts warn of a lower pound price
Currency analysts from HSBC Bank expect the British pound (GBP) to fall by 2021. According to HSBC’s head of European currency analysis, Dominic Bunning, the GBP continues to face further setbacks in the new year due to the economic impact of the Coronavirus and the fact that trade between the two countries will continue to change fundamentally.
Bunning said: “Even with a free trade agreement, increased costs in the form of ‘non-tariff barriers’ will be significant – by up to 14 percent based on British Treasury analyzes.” However, he noted that a Brexit without an agreement would be more damaging as it would cause significant disruption at the border and result in the introduction of more extensive trade tariffs.
Bunning also said that the UK was hit by the steepest economic downturn in the second quarter compared to other G10 countries and that restrictions on lock-in during the fourth quarter dampened the recovery outlook.
While a Brexit deal could lead to upward revisions of Britain’s gross domestic product (GDP), a softer British pound (GBP) would “help counteract the relatively negative development of Britain’s cyclical rebound compared to its peers.”
However, HSBC analysts warn that if the UK-EU trade talks collapse, the exchange rate of the British pound to the dollar (GBP / USD) could be reduced to the level of 1.10 USD, while the exchange rate of the British pound to the euro (GBP/EUR) could rasa 20-25 percent.
GBP traders seem to be nervous after Britain’s chief negotiator David Frost’s statement; However, the volatility of the pound sterling (GBP) may increase in the coming days with the EU summit in sight.
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Will continue to do what is required
The British government will continue to do what is necessary to support companies and households through the pandemic. This was said by the British Minister of Finance Rishi Sunak on Wednesday, when he presented the budget. The redundancy support will be extended until the end of September. For employees, the conditions will be the same, for entrepreneurs, the proportion they contribute will rise slightly from July onwards in August and September.
Support for self-employed workers will also be extended until September. This summer, when the economy is expected to begin to recover, it is at the same time reasonable to target support more to those hardest hit. The allowance for low-income earners of £ 20 a week will be extended for another six months. Special support will also be directed to shops and hotels that open later this year. The reduced VAT rate for the hotel and tourism sector will be extended until September, when it will be raised to 12.5 percent over six months.
In order to finance an improvement in public finances in the long run, the threshold for paying income tax will be frozen at £ 12,500, from 2022 to 2026. However, tax levels will not in themselves be raised. Corporate tax will be raised from 19 percent today to 25 percent from 2023. “It is a tax increase on corporate profits, but only for the larger most profitable companies and only for two years,” he said. Craving exciting trading? Then try eToro free of charge where you can follow the leading traders based on your risk level, instruments and strategy.
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Author: Erik Forsell
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