Disappointed, but not hopeless. This is how you can describe the feelings of fans of the British pound. The economy of the UK is growing slower than expected. London and Brussels are behaving like cat and dog after the divorce, and the Bank of England is afraid to go too far in normalizing monetary policy. Nevertheless, the GBP/USD quotes are still going up, but the supposedly strong sterling cannot be thanked for this.
According to the Office for National Statistics, Britain's GDP grew by 0.8% MoM in May, and by 3.6% QoQ in March-May, as a result of which the economy is currently only 3.1% below the pre-pandemic level. We are talking about the narrowest divergence since the beginning of the crisis, which, it would seem, should cause a storm of positive emotions among the "bulls" on GBP/USD. In fact, Bloomberg experts expected large numbers due to the successful vaccination and exit from lockdowns. If the UK continues in the same spirit, then the Bank of England's 2021 forecast of 7.25% may not be reached.
Andrew Bailey and his colleagues have recently decided to play it safe and not throw a red rag in front of the sterling bulls. The BoE chief, in response to a statement by chief economist Andy Haldane about a possible acceleration of inflation to 4% by the end of December, argues that too fast normalization of monetary policy could undermine efforts to restore the economy. Bailey's dovish rhetoric suggests that the central bank will continue to pull the cat by the tail for a long time to come. While the Fed is set to exit QE earlier than financial markets currently anticipate, different speeds of monetary policy should play into the hands of the GBP/USD bears. Alas, they are in no hurry to win back this trump card.
Dynamics of British inflation and the Bank of England repo rate
There are always two currencies in any pair, and the success of the bulls is more related to the weakness of the US dollar than to the strength of the pound. This is primarily due to concerns that the global economy will not recover as quickly as expected due to the spread of the delta variant of COVID-19, forcing investors to buy up safe-haven assets, including the Japanese yen, Swiss franc, and US bonds. The falling profitability of the latter is bad news for the USD index.
The week of July 16 is full of economic events for the sterling. The release of inflation and labor market data, coupled with speeches by representatives of the BoE Monetary Policy Committee, will clarify the latter's position. Surely the dynamics of the analyzed pair will be influenced by the statistics on American inflation and Jerome Powell's speech before Congress.
Technically, the exit of GBP/USD quotes outside the descending trading channel sets the bulls in a major mood. If the pair does not return below 1.3825 soon, which may become a reason for the formation of shorts, then sterling fans will set a new target. To activate the inverted Shark pattern, first, you need to storm the resistance at 1.3935-1.3955. Success in this event is a signal for the opening of longs.
GBP/USD, Daily chart
