As hordes of shoppers prowl British stores, inflation is doubling, unemployment is falling, and business and confidence are surging to all-time highs, one can only wonder why the GBP/USD is not rallying further. Strong macroeconomic statistics increase the likelihood that the Bank of England will turn "hawkish", which, given the Fed's mantra about the temporary acceleration of consumer prices in the US, allows us to consider the issue of the direction of movement of the pound against the US dollar resolved. Still, something is holding the bulls back.
Even though speculative positions in sterling are wandering near the maximum levels over the past two and a half years, the analyzed pair has room to grow. The trade-weighted pound exchange rate is currently 15% lower than the average over the past 40 years, and the GBP/USD quotes are trading 10% lower than before the referendum on the UK's membership in the EU in 2016. At the same time, the business activity took off from 60.7 to 62.0 in May, the highest level since the start of accounting in 1998, retail sales growth of 9.2%, which is twice the consensus estimate of the Reuters experts, and the acceleration of inflation from 0.7% to 1.5% suggest that the UK economy is facing an unprecedented recovery.
Business Dynamics in Britain
The Bank of England predicts that UK GDP will expand by 7.25% in 2021 after the worst recession in 300 years. At the same time, BoE Governor Andrew Bailey spoke before the British parliament and claimed that the Central Bank will not allow inflation to exceed the target of 2% for a long time, which suggests that the cycle of monetary policy normalization will continue. Many in the market believe the BoE has already started it, cutting QE asset purchases from £4.4-£3.4 billion a week at its latest Monetary Policy Committee meeting.
Why, then, a powerful package of positive macroeconomic statistics and the associated expectations of monetary restriction by the Bank of England does not lead to a significant increase in GBP/USD quotes? The root is the uncertainty about the future actions of the Fed, as well as in the fact that the sterling's important trump card in the face of accelerated vaccination, most likely, has practically won back. Indeed, Britain was ahead of other countries in terms of the vaccination rate against COVID-19, so investors were entitled to expect a positive from the economy. Another thing is that other countries are starting to speed up vaccination processes, and the market is used to buying rumors and selling facts.
Currency exchange rate changes and vaccination rate
I do not think that this circumstance will become an insurmountable obstacle on the way of the pound to the title of the best performer of the year among the G10 currencies. So far, it is competing with the Canadian dollar and the Norwegian krone and, under certain conditions, will be able to take the cup.
Technically, the inability of the GBP/USD bears to implement the Anti-Turtles pattern will be evidence of their weakness. It makes sense to buy the pair above 1.417, as well as on the rebound from dynamic supports in the form of moving averages.
GBP/USD, Daily chart