The British currency is again in the zone of price turbulence: the "super-Thursday" turned out to be really saturated, meeting the expectations of traders. But, despite the strong volatility, the pound movement vector has not yet been determined. The fundamental factors of today are controversial, so both the bulls and the bears were able to find appropriate arguments for themselves to influence the GBP/USD pair.
The initial reaction of the traders was definitely negative. The regulator revised the forecast for the growth of the British economy - both for the current and for the next year. Thus, according to the central bank, the country's GDP in 2019 will increase by only 1.2% (although the forecast was previously at the level of 1.7%), and in 2020 - by 1.5% (previously - 1.7%). Another blow for the pound was the revision of the inflation forecast. Most members of the central bank are confident that core inflation in the coming months will fall below the target two percent level. The Bank of England also noted a weak increase in productivity (the main indicators do not even reach weak forecasts), since the vague prospects of Brexit reduce the investment attractiveness of the country.
This portion of negativity pushed the GBP/USD pair to the middle of the 28th figure, since published forecasts reduced the likelihood of a rate hike this year even with a favorable Brexit scenario. But after a few hours, the mood of the traders changed dramatically. Firstly, Mark Carney unexpectedly took a rather "hawkish" position: he was optimistic about both the prospects for the British economy and the prospects for Brexit. First of all, he said that the key fundamental indicators of Britain remain stable: the labor market is steadily creating jobs, and the real incomes of citizens continue to grow. Carney separately noted the growth of wages - in his view, this factor carries a "bullish risks", offsetting the slowdown in core inflation. He also said that the "hard" Brexit would not necessarily lead to a decrease in the interest rate: the Bank of England will assess the consequences, carefully weigh the pros and cons and only then make the appropriate decision.
In other words, if the "divorce process" follows a chaotic scenario, the regulator will not automatically mitigate the monetary policy conditions. Answering journalists' questions, Carney clarified his point. He said that traders should not escalate the situation and prepare for a rate reduction: moreover, the option of tightening the parameters of monetary policy is not excluded at all at the moment and is considered by members of the central bank as a "working version".
As for Brexit, Mark Carney also maintained optimism. He said that the "hard" scenario is not the most likely among all the others, so it is not advisable to panic about this. He added that in the civilized divorce of London and Brussels, inflation in the country will move up and within a short time CPI will again exceed the target level, forcing the central bank to make appropriate decisions regarding monetary policy.
As a result, Mark Carney dispelled panic and pessimism in the market, after which the pound began to be in demand. The GBP/USD bulls again had the opportunity to purchase the pair at multi-week lows - all the more so after the pendulum swung in the direction of the British currency.
Along with the bank's meeting in Brussels, completely different events took place, which, however, also supported the pound. The results of the meeting between Theresa May and the President of the European Council Donald Tusk were not as pessimistic as many experts had expected. And although the details of the meeting remained "behind the curtain," their dialogue was clearly in a positive way. The British prime minister said that the negotiations were "tough, but quite constructive." The parties dispersed in the corners of the ring, agreeing to meet again until the end of February. In addition, EU representatives are increasingly saying that Britain's withdrawal from the EU without a deal is an extremely unacceptable option for everyone.
And although all these factors are indirect, the GBP/USD bulls were satisfied with the results of the day. First, the Bank of England retains a very "hawkish" attitude, despite declining forecasts and uncertain prospects for Brexit. The regulator is clearly not seeking to mitigate monetary policy and does not exclude the option of raising the rate this year. Secondly, the negotiation process between London and Brussels was fairly smooth. The parties did not "slam the door" and abandoned hope of reaching a compromise. It is worth recalling here that just the day before, Donald Tusk published a very aggressive post, in which he unequivocally accused the British leadership of recklessness.
Given the fact that GBP/USD traders end the trading day on a positive note, the pair has the potential to approach the nearest resistance level of 1.3030 - this is the Tenkan-sen line on the daily chart. If the price consolidates above this target, then a more significant increase to the top line of the Bollinger Bands indicator on D1 is possible.
