The Fed's reluctance to force events and the strong statistics on UK retail sales inspired the GBP/USD bulls to attack
Never ask for anything! Never for anything, and especially from those who are stronger than you. They'll make the offer themselves, and give everything themselves. The GBP/USD bulls dropped their heads after a series of disappointing data, and only the reluctance of Jerome Powell and Co to raise rates as often as it is expected of them, allowed the sterling fans to get out of the trenches. The improvement in the FOMC's forecasts for key macroeconomic indicators resulted in an increase in the likelihood of the four monetary restrictions by the Fed in 2018 to 56%. The futures market estimates the chances of the Fed tightening the monetary policy in September at 82%. The yield of 10-year US Treasury bonds is very close to the psychologically important 3% mark, but the greenback is confused by the willingness of the central bank to tolerate inflation above the target.
Dynamics of FOMC and Futures Market Expectations for the Fed's Rates
After finding out that its main opponent is not going to strengthen on a favorable external background, the pound rolled up its sleeves and got down to business. The bulls went berserk due to impressive statistics on retail sales: on a y-o-y basis, the indicator jumped by 3.9%, demonstrating the fastest dynamics in more than a year. Its best two-month growth since pre-crisis time indicates that the increase in real wages has resulted in the growth of consumer activity. This allows us to count on the recovery of the economy of the Foggy Albion for the remainder of the year and increases the likelihood of an increase in repo rates.
Prior to the release of data on retail sales, the futures market evaluated the chances of monetary policy tightening by the BoE in August at 43%. At the same time, the worst dynamics of industrial production in the last 5.5 years, the continuing decline in the construction industry, the slowdown in inflation to 2.4%, despite rising energy prices and a slowdown in labor compensation from 2.6% to 2.5%, made traders doubt the activity of the central bank.
The barriers to the pound's north-bound journey were due to the tension around the parliamentary vote on amending the Brexit bills, which resulted in increased volatility. In such conditions, investors tend not to rush to the financial markets of Britain, which badly needs money to finance the current account deficit. As a result, Teresa May won the fight, which allowed the GBP/USD bulls to let out a sigh of relief.
Dynamics of the pound volatility
In recent years, the pound starts slow but drives fast, so a two-week stay in the trading range of 1.32-1.347 may result in rapid growth in the direction of 1.36-1.37 in the event of a confident attack on its upper boundary. The only thing we need to watch out for is the ECB with its signals about the normalization of monetary policy. The GBP/USD bulls are waiting for them like pennies from heaven, and their is likely to launch a wave of sales. The latter may result in a strengthening of the dollar across the entire spectrum of the foreign exchange market. Thus, the sterling again counts on the help of the powerful, but does not ask for it. Will they give it all themselves?
P.S. Did you like my article? Share it in social networks: it will be the best “thank you" :)
Ask me questions and comment below. I’ll be glad to answer your questions and give necessary explanations.
- I recommend trying to trade with a reliable broker here. The system allows you to trade by yourself or copy successful traders from all across the globe.
- Telegram channel with high-quality analytics, Forex reviews, training articles, and other useful things for traders https://t.me/liteforex
Price chart of GBPUSD in real time mode
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.