Last week, the GBP/USD pair lost almost 400 points. This is the strongest rate of decline since September last year when the so-called UK strain of coronavirus began to spread in the country. To date, the coronavirus has also taken an indirect part in the pound's weakening. At the same time, it can be recalled that London was forced to postpone the next round of easing quarantine restrictions, but the uncorrelation between the intentions of the Fed and the Bank of England still acts as the main event affecting the currency.
The disappointing release of UK retail sales data also added pressure on the pair. The indicators came out in the "red zone", reflecting the weak consumer activity of the residents of Great Britain. In addition, the complex and prolonged issue of the implementation of the Northern Ireland protocol prevents GBP/USD buyers from taking revenge. The combination of these fundamental factors suggests that the pair's downward dynamics may continue especially if the British regulator does not support the pound with hawkish rhetoric during the June meeting on Thursday.
The US dollar index slowed down its growth at the start of the new week. The last five-day trading session was marked by a dollar rally: the index surged from 90.55 to a local high of 92.36. The results of the June meeting continue to support the US dollar, but the inertial force is gradually fading. For example, the pound-dollar pair was actually trading flat during the Asian session today, occasionally falling into the area of the 37th figure. In view of an almost empty economic calendar, traders are not in a rush to open new trading positions, as if taking a break after the strong volatility.
However, the results of the June Fed meeting will haunt the traders of the currency market this week. It should be noted that in addition to the Fed, only the Central Bank of New Zealand announced its "hawkish" intentions. At his last meeting, the head of the RBNZ allowed an increase in the interest rate next year. All other central banks of the leading countries of the world take a rather restrained and cautious position on this issue. This includes the Bank of England, whose representatives only ruled out a rate cut in the negative area. As for the prospects of the stimulating program, the representatives of the English regulator do not voice clear signals regarding the curtailment or prolongation/increase of QE.
The UK's latest n retail sales data published last Friday only worsened the situation of the pound. The May figures came out in the red zone both taking into account fuel costs and without this component. In particular, the volume of retail trade, considering fuel costs, fell back into the negative area last month for the first time since January of this year. The indicator collapsed to -1.4% with a growth forecast to reach 1.6%. A similar situation has developed with the related component. The retail sales excluding fuel costs also declined in May (-2.1%), with a 1.7% growth forecast.
It should be noted that although the growth of the US currency has slowed down, it has not stopped. Traders are waiting for the next information impulse, which will allow the national currency to organize another offensive. Today, it was announced that Fed Chariman Jerome Powell will speak in Congress on Tuesday. He will address a House subcommittee hearing with a report on emergency lending and asset repurchase programs in the context of the coronavirus pandemic.
It can be recalled that after the Fed's last meeting, the head of the Central Bank said that the members of the regulator want to first see "significant progress" in the economy and only then they can start discussing the issue of curtailing the stimulus program. At the same time, Powell vaguely commented on the time targets. He said that the Central Bank may begin discussions on curtailing stimulus at subsequent meetings, if progress in the economic recovery continues. If he announces a more specific algorithm for the proposed actions in this direction tomorrow, the US dollar will receive additional and quite powerful support all over the market – including in a pair with the pound, which will be under background pressure ahead of the BoE's June meeting.
From the technical point of view, the nearest support level for the GBP/USD pair is at 1.3670 (lower line of the Bollinger Bands indicator on the weekly chart). In general, the pair on almost all higher timeframes (H4, D1, W1) is located either under the lower line of the Bollinger Bands or between the middle and lower lines of this indicator. This indicates the priority of the downward movement. In turn, the Ichimoku indicator formed its strongest bearish "Parade of Line" signal on the daily chart, in which all the indicator lines are above the price chart, thereby showing pressure on the instrument. And although the main support level is at 1.3670, the downward targets are closer – 1.3750 and 1.3700.
