Brexit, labor market problems, the second wave of COVID-19, and concerns about the introduction of negative interest rates by the Bank of England are ready to drag the British pound to the bottom. According to Goldman Sachs and BofA Merrill Lynch, Andrew Bailey and his colleagues will lower the repo rate below zero if Britain leaves the European Union without a deal. Societe Generale calls such a move suicide because it can force the sterling to rewrite historical lows against the US dollar and other world currencies. The intrigue is alive. It will be more interesting to watch the GBP/USD in the week to September 25.

After the Bank of England meeting, the pound fell into a wave of sales. Although the regulator did not make adjustments to monetary policy, it announced consultations on the possibility of introducing negative rates. A month ago, Andrew Bailey rejected this scenario, so the metamorphosis in the worldview of the Central Bank lowered the GBP/USD quotes below the base of the 29th figure. A speech by European Commission President Ursula von der Leyen that a deal between Brussels and London is still possible allowed the pair to ride a roller coaster and soar in the direction of 1.3. As it turned out, not for long. The deterioration of the epidemiological situation in the Foggy Albion inspired the "bears" to another attack.

The number of new COVID-19 cases in the Foggy Albion has doubled to 6 thousand, the number of hospitalizations has increased, and the number of deaths is growing. The Cabinet is considering a second lockdown, which would be a real disaster for the economy and force the Bank of England to lower the repo rate below zero. The futures market believes that this will happen in the first quarter of 2021.

Expectations of repo rate changes

It is unlikely that the growth in retail sales for the fourth month in a row can somehow sweeten the pill for fans of the pound. The figure is now 4% higher than pre-pandemic levels, indicating strong consumer spending in the third quarter. However, you need to understand that their increase is the result of a fiscal stimulus policy, the terms of which are coming to an end. As a result, there will be problems with work and the reduction in employment is another strong argument in favor of easing the BoE's monetary policy.

Dynamics of British retail sales

Thus, the increase in the probability of a no-deal Brexit is not the only problem for the GBP/USD bulls. Britain and the entire Old World are facing the second wave of the pandemic, which negatively affects the exchange rates of European currencies. The record number of infected people in France, serious problems in Spain, and other countries make us doubt the continuation of the EUR/USD rally. It was based on the divergence in economic growth in the Eurozone and the United States, and this driver is currently no longer working. As a result, the euro and sterling go to the bottom, hand in hand.

Technically, there is a pattern of continuation of the "Ross Hook" trend on the daily chart of GBP/USD. A break in support at $1.283-1.2835 will allow selling the pound with an initial target of $1.27.

GBP/USD, the daily chart