So, the pound-dollar pair has taken a new price height on Tuesday, having already tested the 41st figure. In less than three weeks, the pair has passed the 600-point path, demonstrating a strong and almost recoilless growth trend. The hegemony of GBP/USD buyers is explained by the fact that against the background of the strengthening of the British currency, the US dollar continues to lose its position throughout the market. This multidirectional dynamics once again emerged on Tuesday: the pound enjoyed support from macroeconomic reports, while the greenback came under pressure from Federal Reserve Chairman Jerome Powell, who voiced quite dovish theses in Congress. As a result, the fundamental background enabled the GBP/USD bulls to look into the area of the 41st price level, updating the next multi-month high along the way.
Let's start with the news from the UK. Looking ahead, we can say that the British labor market did not disappoint. The release was another confirmation that the UK economy has withstood the autumn-winter blow of the coronavirus crisis, when the country was forced to find itself in lockdown conditions for the third time. Despite strict quarantine restrictions, the main macroeconomic indicators did not sink (by analogy with the spring of 2020), and in some cases even showed positive dynamics.
The same can be said for the latest release. The number of applications for unemployment benefits fell by 20,000, contrary to forecasts of growth by 13,000. This component also came out in the negative area in December, reflecting healthy trends in the labor market. The salaries did not disappoint either. Average earnings have been growing for the fourth consecutive month. This component for the latest report also entered the green zone, having renewed multi-month highs. Taking into account premium payments, the indicator increased to 4.7%, excluding bonus payments - to 4.1%. The unemployment rate slightly increased - to 5.1% (from the previous value of 5.0%). Given the extent of the quarantine restrictions in place in the UK in late autumn and throughout the winter, such a result is, in my opinion, quite acceptable.
However, not only do macroeconomic reports provide support to the British currency. The coronavirus factor was also on the side of the pound. The British prime minister presented a roadmap for getting out of the lockdown. There will be four stages in total, implementation of which will stretch from March to June. In particular, the first quarantine restrictions will be eased on March 8 - schools will be opened in the country, and residents will be allowed to hold picnics. With each subsequent stage, the number of "liberties" will increase. The final return to normal life is expected on June 17th - on this day they plan to remove all restrictions. At the same time, the vaccination process in the UK is gaining momentum: to date, more than 17.5 million people (that is, almost a quarter of the 70 million population) have received the first dose of the coronavirus vaccine. In terms of vaccination rates, Britain is second only to Israel and the UAE. All adults in the UK are scheduled to vaccinate by the end of July.
Brexit news also provided background support to the pound. It has just been announced that London has agreed, at the request of Brussels, to postpone the ratification of the trade agreement until April 30. Back in February, the European Union offered Britain to provide additional time to ratify the agreement, extending the preliminary application of the agreement until the end of April. The problem is purely technical - the text was not translated into all 24 languages of the Alliance for Parliamentary Control. The fact that London met Brussels halfway on this issue added to the overall positive fundamental picture for GBP/USD.
But the US dollar, in turn, came under pressure from Powell's dovish rhetoric. And although he did not voice anything new or sensational, the dollar reacted negatively to his words. Speaking in Congress, Powell said that recently (namely, over the past three months) there has been no significant progress in achieving the goals. At the same time, he stated that the growth of the American economy "significantly slowed down" after the recovery last summer. Thus, he neutralized rumors that the Fed may start early phasing out QE. Powell noted that "over time" the increase in the balance sheet will slow down, but at the same time, asset purchases will continue until the central bank is convinced of significant progress in the main areas.
In other words, Powell made it clear that the current parameters of monetary policy in the foreseeable future can be changed only in the direction of softening - we cannot talk about any early winding down of QE now. The interest rate will also be held at the current level until full employment is achieved and inflation rises to the two percent target "or slightly higher".
Thus, the current fundamental picture contributes to the pair's succeeding growth. This momentum is usually followed by a corrective pullback that can be used to open long positions. From a technical point of view, the pair on all timeframes (from H4 and higher) is either on the upper Bollinger Bands line, or between the middle and upper lines of this indicator. In addition, the Ichimoku indicator on the four-hour, daily and weekly charts shows a bullish Parade of Lines signal. The main target of the upward movement is the 1.4150 mark - this is the upper line of the Bollinger Bands at W1.