City of London, one of the leading centres of global finance. Image source: Krisztian Miklosy © 123RF.com
According to the Office for National Statistics in the UK, the British economy has contracted by 10.4 per cent in the three months leading to April, which exceeds the consensus forecasts' projections for a 10.0 per cent shrinkage.
This means that the GDP growth rate has fallen more than five times compared to the previous economic report of the series, which was released in mid-May. The sharp economic downturn is prompted by a 20.4 per cent contraction in the Gross Domestic Product growth rate in April alone.
UK Quarterly GDP Growth Rate. Image source: TradingEconomics.com
The worrisome news comes amidst continuous criticisms of the British public targeted at Boris Johnson and his cabinet's dubious response to the coronavirus epidemic.
The government has already undertaken gradual steps towards easing its containment restrictions and allowing the economy to reopen; however, fears of a second coronavirus wave could impede this process.
The British economic recovery is additionally jeopardised by the protracted Brexit negotiations with the EU, which have been lagging since the beginning of the coronavirus epidemic.
Thirdly, the massive turmoil of the energy market in the wake of the crisis, which led to the collapse of crude oil's price, has also been reflected on the hindered economic activity in the UK.
In light of the new ripples in the crude oil market; however, the overall gloomy prospects for growth continue to weigh down heavily on the British economy.
This is why the massive strain that is already exerted on the pound is likely to persist in the foreseeable future.
As can be seen on GBPUSD's hourly chart below, the price action has recently broken down below a significant range, with a lower boundary represented by the minor support (currently resistance) level at 1.26364.
The newly prevailing bearish sentiment was confirmed, following the failed attempt of the price action at retracing back within the boundaries of set range.
Accordingly, the MACD underpins the gradual change of the underlying momentum, which is now having a prevailingly bearish outlook.
In the foreseeable future, all of these factors seem to suggest that the British pound is likely to continue depreciating against the greenback, which is facing its own struggles as well.
GBPUSD 1H Price Chart. Image source: Trendsharks ©, created with TradingView.com
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