Forming positions in the GBP/USD depending on the outcome of the meeting of the Bank of England and statistics on US inflation

When a lot of negativity is priced in the quotes of a currency, any good news can easily push it up. Alas, is not easy to get rid of fear, the problem with the agreement with the EU has not yet been resolved, so the British pound is feverish. The market is too shy, which causes a roller coaster. A typical example was the reaction of the sterling to the BBC's message about the forthcoming vote of no confidence in Teresa May within the Conservative Party, which caused the GBP/USD to lose a quarter of a percent. As soon as the deputies in fact supported the prime minister, the pound immediately returned to its original positions. According to ING, the idea of May's loss of power is a joke, so it makes sense to buy the sterling at a drop below $1.3.

The Foggy Albion's currency would like to respond to macroeconomic statistics, but talks about Brexit deprive it of such an opportunity. Michel Barnier's statement that an agreement between London and Brussels will be achieved within eight weeks has inspired the GBP/USD bulls for an attack. As, indeed, did the speech of Jean-Claude Juncker about the readiness to work day and night to come to a compromise. Prior to that, the President of the European Commission rejected Teresa May's plan. Uncertainty about the conditions of the divorce of Britain and the EU has raised volatility to the maximum marks for six months, which is restrained by the offensive impulse of the pound fans.

Dynamics of the pound volatility

Source: Bloomberg.

In my opinion, if it weren't for the fears about leaving the European Union without a deal, the sterling would look decent. The Bank of England at its meeting on September 13 can easily afford hawkish rhetoric. in May-July, the GDP accelerated to 0.6% q / q, demonstrating the best dynamics for the year, and the average salary grew by 2.6% with forecasts of + 2.4% y / y. The increase in real incomes of the population has a positive impact on consumer demand and economic growth, which allows the BoE's forecasts for a gradual recovery of GDP to be realized. So, the futures market unjustifiably shifted the terms of the next increase in the REPO rate from November 2019 to 2020. The indicator has good chances to come back, which should be regarded as a bullish factor for the GBP/USD

Dynamics of average wages in Britain

Source: Financial Times.

Thus, the rhetoric of the Bank of England and the release of data on US inflation for August will help the pair determine the direction of the further movement. As soon as the CPI accelerates to 3% or more, the dollar will make the pound return below the bottom of the 30th figure. On the contrary, sluggish dynamics of consumer prices will allow the GBP/USD bulls to send quotes to 1.32.

Greenback still looks good on the short-term investment horizon. Long-term prospects are a different thing. According to Bridgewater Associates, the USD index will lose about 30% due to a decrease in demand for US Treasury bonds. The States will not be able to raise money to finance the budget deficit and will have to turn on the printing press.

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I'm no coward, but I'm scared

The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteForex. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC.

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