Two days after the sale of GBP / USD, the pair moved to the support level of 1.2106. It then bounced higher and was at 1.2225 at the time of writing. Volatility seems to confirm the extent of the difference in investor sentiment in the market. Stock market bears could „really” return, Morgan Stanley warns in a forecast that, if true, could trigger a weaker pound. The British pound is closely linked to global risk appetite and strengthened in October, November and December as equity markets recovered. Can the rally continue into the new year, when the world’s largest economies are expected to fall into recession? , Morgan Stanley analysts weighed in as a tactical play because they believe the long-term bear market is still intact. So says Morgan Stanley equity analyst Michael J. Wilson. „As suggested a few weeks ago, the recovery from this tactical rally requires a decline in the recovery. Fast forward to today and it happened. However, we are now in our initial bullish targets and recommend taking profits before the bear returns in earnest. Advertisement TRY YOUR RETURN TRADING STRATEGY Start Now Free The pound has rebounded from record lows against the dollar and multi-month lows against the euro in recent weeks, coinciding with a recovery in global equity markets. How it trades at the end of the year will probably depend on what happens to that animal farm. For his part, Dominic Banning, head of European currency research at HSBC, says: „The British pound has been strongly influenced by the wider risk appetite this year, and equity movements are generally seen as sterling’s dominant factors.” But why are stocks important for the British pound? An indicator of international investment sentiment is stock returns, which is crucial in the context of Britain’s current account deficit: Britain’s current account remains in deficit because Britain imports more than it exports, which means it buys more currency than it wins . At the same time, the Office for National Statistics reported that the main current account deficit of Great Britain was 5.3 percent of GDP, and analysts emphasized the importance of the deficit in determining the outlook for the pound. For example, RBC Capital is betting on a fall in the GBP/EUR exchange rate by 2023 due to the country’s twin deficits. Despite currency inflows from the current account deficit, the pound may remain stable or even appreciate when foreign investors buy British assets and/or when British investors repatriate earnings from foreign investments. This dynamic makes the pound vulnerable to moments when the flow of foreign investors decreases, as usually happens during downturns in global markets. It follows that the pound is likely to fall again as global equity markets return to the broader decline that has been in place since 2021. There is no indicator more important to the common sense of investors around the world than the performance of the US stock index SandP 500. He believes that the risk/reward to further upside is currently very weak, meaning that there may be less to move the pound higher. more attractive than in recent weeks. GBP/USD forecast today: It seems clear that the price of the GBP/USD pair is still under downward pressure. To break the upward trend, the currency pair needs to move to the support levels of 1.2070 and 1.1890. On the other hand, and in the same period, breaking the resistance of 1.2300 is important to gain control of the bulls. At the same time it moves the technical indicators to an overbought level. The , pound-dollar pair is not expecting any major economic data other than the announcement of the weekly number of US unemployment benefits, and will also be influenced by the performance of global equity markets and whether or not investors are willing to take risks.