On Tuesday, the British Parliament held hearings on the prospects of inflation in the country. Traditionally, this event was focused on the market, since not only the head of the Bank of England, but also the "ordinary" members of the English regulator, acted before parliamentarians. Their rhetoric has allowed us to understand what sentiment is surrounding the Central Bank in the context of the prospects of tightening monetary policy. As it turned out, not everything is as bad as it might seem to many traders: the members of The Bank of England remain optimistic and did not abandon the idea of a gradual increase in the interest rate. However, everything in order.
Mark Carney's speech in the Lower house of Parliament cannot be called a hawk. After each kind of "plus", it was followed by a no less significant "minus". On the one hand, it justified the economic downturn in the first quarter of this year by a seasonal factor, pointing to abnormally bad weather. On the other hand, he said that most of the economic losses will not be compensated in the near future.
Carney also noted a gradual increase in the real income indicator, but at the same time warned that the British are likely to restore their reserves (accumulating funds) than raise the level of consumer spending. In addition, Mark Carney ambiguously assessed the prospects of Brexit. According to him, now the markets are forced to put up with uncertainty in this matter, but in the future this factor will have less influence, allowing the regulator to be more resolute in the matter of tightening monetary policy. This phrase sounds rather vague and veiled, but the implication is obvious: as soon as London and Brussels conclude a mutually beneficial (as much as possible) deal, the Central Bank will be untied in the matter of hiking rates. Given the fact that the "divorce" process is now very difficult, it is not advisable to talk about the possible acceleration of the pace of rate hikes to date. The turning point in this regard will be the June summit of the EU countries, but it is still more than a month.
In general, Mark Carney's position was half-hearted. It continues to adhere to the baseline scenario for this year, which involves one rate hike. However, amid the slowdown in key indicators, the head of the British central bank decided to take a wait-and-see position, assessing the dynamics of economic growth in the second quarter of this year. The other members of the Bank of England voiced a similar opinion, confirming the general intentions of the central bank.
That is why the key macroeconomic statistics will now play a special role for the pound. First of all, we are talking about the dynamics of inflation, the labor market and the main PMI indices. On Wednesday, the British consumer price index will be published, which will can guide traders on the prospects of the GBP/USD pair.
The consensus forecast is good: according to analysts, the indicator will grow on a monthly basis to 0.5% and to 2.5% - in annual terms. But the core inflation index (excluding volatile energy and food prices) should show a further slowdown, reaching 2.2%. If Wednesday's figure comes out better than expectations, the pound will again get a reason for its corrective growth. The bulls of the pair are unlikely to develop a large-scale offensive, but they are quite capable of approaching the boundaries of the 35th figure. If the CPI disappoints the market, the downward trend will have a continuation, driven by a strong dollar. This fact explains Tuesday's cautious dynamics of the pound-dollar pair: traders simply do not know which way the "scale" will swing, so they do not open large positions.
From the technical point of view, the priority remains behind the downward price movement. Thus, the GBP/USD pair on the daily price chart fell below the average line of the Bollinger Bands indicator, at the moment it is trading in the range between the average and the lower lines of this indicator. Thus, the Bollinger Bands trend indicator formed a bearish signal, as well as the Ichimoku Kinko Hyo indicator. The price chart clearly shows the "Parade of lines" signal, in which all the lines of the indicator are above the graph, pointing to the further downward vector. Oscillators, like trend indicators, indicate a decline in the pair, being in the oversold area.
In other words, despite attempts at corrective growth, the GBP/USD pair is under pressure from the technical picture. The fundamental background allows for further correction to the border of the 35th figure, but under one condition – if Wednesday's inflation release will be better than the forecast values. Otherwise, bearish sentiment will prevail and the price will continue to fall to the next local support level – 1.3390 (annual low). Tuesday's parliamentary hearings have created the necessary springboard for the pound's recovery, but in order to implement this scenario, an important component is needed: a steady increase in inflation.
