Tomorrow is an important day for the pound - the so-called "Super Thursday", when within a single day, a large amount of information enters the market regarding the monetary policy prospects of the Bank of England and the British economy. Firstly, the May meeting of the English regulator will be held tomorrow, after which a summary of monetary policy and a report on the financial stability of the central bank will be announced. Secondly, there will be a press conference of the new BoE Chief Andrew Bailey. We will also be able to familiarize ourselves with the minutes of the above meeting (it was previously published with a two-week delay). And as a small bonus, we find out the value of GfK's British consumer confidence indicator. Such a news jackpot is relatively rare, therefore GBP/USD traders play out tomorrow's pessimism of the regulator's members.
However, the pound is getting cheaper not only in anticipation of tomorrow's events. Today's news feed also leaves much to be desired. It became known that the death toll from COVID-19 in the UK exceeded mortality in Italy. At the moment, Britain is leading in the anti-rating of European countries in the number of deaths from coronavirus. Among all countries of the world, the British are second only to the United States - nearly 70,000 people became victims of the fatal illness in America. Let me remind you that Prime Minister Boris Johnson once put off the introduction of strict quarantine, while hospitals in Italy were already crowded.
And now, apparently, Britain is reaping the fruits of its slowness. Johnson is forced to quarantine the country later than anyone else. Today, he said that his ministers have developed a three-stage plan to ease restrictive measures: the first stage will begin only on May 11 and will include the opening of small shops and jobs in the open. At the second stage, large shopping centers will open. Among the latter, pubs, restaurants, hotels and entertainment centers will be open. What time range will be between the first and second, as well as the second and third stages is unknown. Moreover, if the situation with morbidity and mortality from COVID-19 worsens before Sunday, then Johnson can move the date of introduction and the first stage of quarantine exit.
Meanwhile, the macroeconomic data of Britain continues to set anti-records. In particular, the April index of procurement managers in the construction sector collapsed to 8.2 points, while back it was at 39.3 in March. The PMI for the service sector came out at 13.4 points in April, continuing the downward trend (in February this indicator was at 53.2 points, in March - 34.5 points).
Against the backdrop of such a fundamental picture, the BoE does not have any reasons for optimism. Therefore, according to general market expectations, rather gloomy prospects may be reflected in the updated economic forecasts of the regulator. In particular, according to some experts, the central bank will declare a drop in GDP in the second quarter by 30–35%. In this case, the British currency will collapse throughout the market, while a more optimistic forecast can help the GBP/USD bulls to stay afloat.
In addition, the BoE could announce that it will redeem more bonds to prevent the growth of borrowing costs. Let me remind you that back in March, the BoE lowered the rate to 0.10%, and also expanded the asset repurchase program by 200 billion pounds (that is, the program currently stands at 645 billion). Andrew Bailey can either expand the program tomorrow or hint that such decisions will be made at the June meeting. It should be noted here that, as a rule, the expansion of QE negatively affects the currency - but in this case, such a decision may provide support to the pound. Such decisions of regulators are considered by traders in the context of combating the consequences of the coronavirus, and therefore are positively perceived by market participants.
Thus, if the results of tomorrow's Super Thursday are not in favor of the British currency, the GBP/USD pair could demonstrate another downward track - this time to the 1.2270 level (the lower line of the Bollinger Bands indicator, coinciding with the upper border of the Kumo cloud on the daily chart). If the bears overcome this support level, they will open their way to the lower border of the cloud, that is, to the 1.2125 level. This is the main scenario. An alternative is less likely - but if members of the English regulator nevertheless take an optimistic position and increase QE, the GBP/USD pair will return to the middle line of the Bollinger Bands indicator, which coincides with the Tenkan-sen line, that is, to the middle of the 24th figure.
