The pound is "weakening before our eyes": the British currency continues to actively become cheaper against the US dollar, updating more and more new price lows. The rate of decline is impressive. Just yesterday, the GBP/USD bears tested the support level of 1.2600, while today they are trying to settle within the 25th figure. The last time the pound was in this price area was in July 2020, that is, almost two years ago. At that time, the pair was under the strongest pressure of the coronavirus crisis. In the spring of the 20th year, in the wake of the strongest excitement around the US currency, the GBP/USD pair collapsed to the level of 1.1411, while the monthly high was previously in the area of the 31st figure.
The current decline of the pair is more systematic, but still confident. The pound has been getting cheaper for the second consecutive month. Take a look at the monthly chart of GBP/USD: at the beginning of this year, the pair was trading in the price range of 1.32-1.35, but since March it began to decline actively, losing 800 points in almost two months.
For several months of 2022 (from January to March), the pound was kept afloat due to the hawkish actions of the Bank of England (BoE). The English central bank has been consistently raising the interest rate since December (three increases of 25 points). In this regard, the Brits were ahead of their American counterparts, who decided on the first increase only in March of this year, reacting to the rapid growth of inflation.
But since then, the situation has changed dramatically. The Federal Reserve gradually began to tighten its rhetoric (even yesterday's doves, such as Brainard, joined the hawkish wing), while the BoE, to the surprise of many analysts, began to "lose its grip". BoE Governor Andrew Bailey increasingly began to talk about a "high degree of instability", thereby casting doubt on the appropriateness of an aggressive pace of raising the rate. And in general, the last – March – meeting turned out to be by no means hawkish. One of the Committee members voted against the rate hike, which was a big surprise for traders. The lack of solidity, even in such a minimal manifestation, was supplemented by the rather cautious wording of the accompanying statement. Bailey's subsequent statements only completed the picture, as if completing a puzzle.
And the current picture was not in favor of the British currency. Against the background of geopolitical uncertainty, many experts admit the possibility that the central bank will take a break at least until June 16, when the next BoE meeting will take place.
At the same time, the Fed is demonstrating a "fighting spirit". The rhetoric of most Fed representatives is unambiguous and categorical: the US central bank is ready for a 50-point rate hike at the May meeting and does not exclude the option of a 50-point increase at the June meeting. There are no discrepancies here. An absentee discussion between members of the Fed arose in the public plane about another question: whether to raise the rate in May by 50 points or still decide on a 75-point increase? And although James Bullard's "ultra-hawkish" proposal did not find support from other colleagues (although many of them did not voice their position), the option of raising the rate by 75 points cannot be discounted.
The markets react to all these scenarios accordingly. The yield of treasuries is growing, the US stock markets are declining (including due to geopolitical risks). In particular, the Dow Jones index sank by 1.45% today, the Nasdaq - by 3.10%. European major stock indexes declined by an average of 0.80%.
The beneficiary of the current situation was the greenback, which continues to gain momentum – both due to the strengthening of hawkish expectations, and due to the strengthening of anti-risk sentiment. The pound is not capable of active "defensive" actions, so the downward trend is now "in full swing". Nevertheless, a corrective pullback on the pair is quite possible. At the moment, the GBP/USD bears are testing the 1.2600 mark, overcoming which will open the way to the area of the 25th figure. In this price area, many traders can lock in profits, temporarily extinguishing the bearish momentum. It is advisable to use the correction to open short positions, with targets like 1.2600, 1.2550.
From a technical point of view the pair on the D1 timeframe is located under the lower line of the Bollinger Bands indicator, as well as under all the lines of the Ichimoku indicator, which formed a strong bearish Parade of Lines signal. This indicates a clear advantage of the downward movement. The main target of the decline is located on the lower line of the Bollinger Bands indicator on the weekly chart, that is, at 1.2600. The next price barrier is the 1.2550 target.
