The pound, paired with the dollar, continues to besiege the 41st figure. Last week, buyers of GBP/USD tested this price level, but could not gain a foothold above the level of 1.4100. Nevertheless, the pound sterling retains the potential for further growth in the medium term – at least to the first resistance level of 1.4150 (the upper line of the Bollinger Bands indicator on D1). The fundamental background for the pair is in favor of the pound, while the greenback still looks vulnerable.
Let me remind you that last week's data on UK GDP growth for March was in the "green zone", exceeding market expectations. On a monthly basis, the British economy accelerated by 2.1%, with a growth forecast of 1.5%. At the same time, in March, there were still quite strict quarantine restrictions, which were relaxed in April and May. But despite the actual lockdown, the country's economy has demonstrated "stress resistance" and even exceeded the forecast values. After this release, Bank of England Deputy Governor Ben Broadbent allowed a gradual tightening of monetary policy "under certain conditions". According to him, for this, the Central Bank needs "clear signs of a steady recovery in inflation in the direction of the target level." The pound reacted to these words with active growth throughout the market.
This week, the pound may get an additional boost for its growth. On Wednesday, key data on the growth of inflation in Britain will be published. Taking into account the voiced position of the English regulator, this release may provoke increased volatility in the GBP/USD pair. According to preliminary forecasts, the consumer price index on a monthly basis in April will be released at the level of 0.6%, thus updating the annual maximum. In annual terms, the indicator may also show a jump in growth, ending up at 1.4% - in this case, the indicator will show the strongest growth rate since March 2020. Core inflation should also show similar dynamics – according to most analysts, the core consumer price index will rise to 1.3%. This will indicate that core inflation has consistently accelerated for the third month in a row. In addition, on Wednesday, the producer price index will be published (growth is expected both in monthly and annual terms), as well as the producer purchase price index (positive dynamics is also expected).
If the above indicators come out at least at the forecast level, the pound will receive significant support, not to mention a stronger result.
The upward dynamics of GBP/USD is also due to other fundamental factors. In particular, since today, the British authorities have eased a number of restrictions in England, Wales, and most of Scotland, allowing many business areas to open and lifting the ban on traveling abroad. Hotels, hostels, theaters, concert halls, museums, cinemas have been opened in the country. The ban on the admission of spectators to sports events has also been lifted. Universities and schools were able to restore full-fledged work: students will now be allowed not to wear masks in the corridors and classrooms. Commenting on this decision, Downing Street noted that the number of vaccinated people in the UK is actively growing and the number of hospitalizations is decreasing. In addition, the new strains of coronavirus do not affect the indicators of the incidence rate. Against the background of such trends, Boris Johnson said that by June 21, the country will return to "relative normality", almost completely lifting quarantine restrictions.
Thus, there are several fundamental factors on the side of the sterling. Among them – the growth of key macroeconomic indicators, the "hawkish" intentions of the Bank of England, the easing of quarantine restrictions.
In addition, today it became known that the UK has proposed to Brussels a phased plan for the introduction of customs checks in Northern Ireland. Let me remind you that, according to the Agreement with the EU, the grace period was supposed to end on April 1, but the British side unilaterally extended this period until October 1 (against the background of pressure from entrepreneurs). In response, Brussels launched legal proceedings against the UK for Brexit violations. Today's proposal from London can be considered as a compromise solution - although the official position of the EU on this initiative is not yet known.
It should also be noted that tomorrow, May 18, a meeting of the special committee on economic issues will be held in the upper house of the British parliament. As part of this meeting, the leadership of the Bank of England – Governor Andrew Bailey and his deputies – Ben Broadbent and David Ramsden will speak. At the hearings of the special committee of the Treasury, representatives of the British regulator, as a rule, talk about their vision of the economy through the prism of the prospects for monetary policy. If tomorrow they voice (confirm) "hawkish" intentions, the GBP/USD pair can demonstrate an impulse growth.
From the technical point of view, the price is either on the upper line of the Bollinger Bands indicator or between the middle and upper lines, which indicates the priority of the upward direction. On the time frames from H4 to W1 (that is, except for the monthly chart), the Ichimoku indicator has formed a bullish signal "Line Parade", when the price is above all the lines of the indicator, including the Kumo cloud. This signal also indicates bullish sentiment. The nearest target of the upward movement in the medium term is the mark of 1.4150 (the upper line of the Bollinger Bands indicator on D1), the main target is the mark of 1.4240 (the upper line of the Bollinger Bands on MN).