And let someone throw a stone into fundamental analysis, looking at how, under the influence of strong macro statistics in Britain, the pound began to recover its positions against the US dollar, which is doing great in March. Yes, the US dollar is strengthening against its main competitors amid rising Treasury yields, the acceleration of the US GDP to 6.5% in 2021, according to the Fed's forecasts, large-scale fiscal incentives, and rapid vaccinations, but the sterling will keep up.
Most of the important economic data for the lockdown period that began on January 4, including output, employment, business sentiment, and government finances, were better than forecast, indicating that companies and households are adapting to the lockdown. As the UK economy is poised to lift the restrictions amid rapid vaccinations, we can expect its rapid growth during the rest of the year. Moreover, positive economic surprises reduce pressure on the government and the Bank of England to expand stimulus, which is also good news for GBP/USD bulls.
Dynamics of economic surprises in Britain
In its February monetary policy report, the BoE claimed that Britain's GDP would contract by 4.2% in the first quarter, but at the end of March, MPC members Silvana Tenreyro and Michael Saunders said the economy actually looked stronger than the estimate. According to Barclays, Oxford Economics, and ING, the gross domestic product will sag by 2-2.5% in January-March, Pantheon Macroeconomics, HSBC, and EY Item Club expect it to decline by less than 1.9%.
Thus, if in the first quarter the divergence in economic growth played on the side of the "bears" on GBP/USD, allowing them to take the pair quotes away from the area of 3-year highs, then in the second quarter the situation may turn upside down. Vaccinations in the UK, where 50.4% of the population received injections, is progressing faster than in the United States (43%), the fiscal stimulus for the size of the economy is comparable, and the Bank of England adheres to the same principles as the Fed. BoE, similarly with the Fed, is not worried about the growth of profitability.
In my opinion, the sterling will continue to recover its lost positions in April-May. Before the March sales, it claimed the status of the best G10 currency, and thanks to the opening and acceleration of the British economy, primarily due to strong deferred demand, the pound will have the opportunity to regain its former glory. Moreover, the problems regarding Brexit are gradually being corrected. In particular, the GBP/USD bulls were enthusiastic about the information on the agreement between London and Brussels on a pact on financial services.
Technically, the "Wolf Wave" pattern is forming on the daily chart of the analyzed pair. The return of GBP/USD quotes above the maximum of bar #2 near 1.3915 will be the basis for opening long positions. At the same time, the "False breakout" pattern will be relevant: the inability of the "bears" to keep the pair below the lower border of the consolidation range of 1.38-1.4, followed by a return of quotes to its middle (1.39-1.3915) – is a reason to buy the pound.
GBP/USD, Daily chart
