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Hawkish rumors fuel interest in the pound

The pound-dollar pair retreated from two-month lows yesterday, impulsively breaking the 150-point way up in just a few hours. If Friday’s low was fixed at 1.3786, yesterday’s high was recorded at 1.3936. It is noteworthy that the British currency on Monday rose in price against the background of an almost empty economic calendar, without any specific informational reason. However, there were certain reasons for the optimism of the gbp / usd traders: some British online media leaked information that the Bank of England at its June meeting (which will be held the day after tomorrow) will voice a more “hawkish” position regarding the current expectations of the expert community. According to an insider from unnamed sources, the British regulator will allegedly allow the option of curtailing the program of buying government bonds for 875 billion pounds after inflation reached its highest level in almost two years. Despite the rather strong northern impetus, buyers of gbp / usd were unable to build on the success or even keep the occupied heights. Already today the bears have seized the initiative on the pair. Firstly, the above information was not confirmed by such authoritative resources as Financial Times, Reuters, Bloomberg, WSJ. According to them, the Bank of England will maintain a wait-and-see attitude, and the head of the Central Bank, Andrew Bailey, will voice “dovish” rhetoric, stating that the national economy needs further support. The only “curtsy” in favor of the hawkish scenario is a possible increase in the number of those who will vote to curtail QE. And here it should be noted that even a minimal strengthening of the “hawk wing” will support the pound, despite the fact that the majority of representatives of the Bank of England will support the preservation of the status quo. At the May meeting, the chief economist of the British regulator Andy Haldane was the only one who voted for the termination of bond purchases under the quantitative easing program in August. According to a number of analysts, at the June meeting, he will maintain his position, given the fact that inflation in Britain in May for the first time in two years exceeded the target of two percent. Moreover, according to some media reports, Haldane may be supported the day after tomorrow by some of his colleagues – according to one information, it will be John Cunliffe, according to the other – Cunliffe and Dave Ramsden. In general, a more “hawkish” attitude is expected from the British regulator in the light of the latest macroeconomic reports, large-scale vaccination rates and the weakening of quarantine. And although not all economic indicators showed growth, overall expectations are optimistic. Indeed, in addition to inflation growth, other key indicators also showed positive dynamics. In particular, according to the latest data, the volume of UK GDP in April this year increased by 2.3% compared with the previous month. The indicator is higher in the “green zone”: the British economy has shown record growth rates since July last year, ahead of the official forecast. Against the background of the easing of quarantine restrictions, the service provision sector showed the strongest growth (+ 3.4%). While in the construction sector, as well as in the industrial sector, negative dynamics was recorded. There is another fly in the ointment: May data on retail sales in the UK came out in the red – both with and without fuel costs. Thus, the volume of retail trade, taking into account fuel costs last month, again fell into negative territory – for the first time since January this year. With the forecast of growth to 1.6%, the indicator fell to -1.4%. A similar situation has developed with the “related” component. The volume of retail trade excluding fuel costs in May also decreased (-2.1%) against the forecast of growth by 1.7%. Such contradictory fundamental signals suggest that the pound may once again fall victim to high expectations if the Bank of England maintains its “dovish” position, and the idea of ​​curtailing QE is supported by only one representative of the regulator – Andy Haldane. For this reason, gbp / usd traders are in no hurry to open large positions now. Both buying and selling look risky, especially in light of Jerome Powell’s speech to Congress today. There is no consensus among experts and analysts regarding the impact of this event on the market. According to some currency strategists, Powell will repeat the main theses of the June meeting, providing additional support to the dollar, and, accordingly, gbp / usd bears. According to other experts, the head of the FRS will voice rather cautious rhetoric before the congressmen, thereby extinguishing the “unnecessary” excitement that has arisen around the greenback. Indeed, in addition to the “hawkish” results of the June meeting of the Federal Reserve, the position of the dollar was further strengthened by some representatives of the FRS, who spoke this week. In particular, Bullard called for an interest rate hike as early as next year, and Robert Kaplan said about the “danger of too slow action.” Jerome Powell will address congressmen at the close of today’s American session. Reuters, citing its sources, published the abstracts from his speech prepared for this speech. They are rather vague, reflecting the “cautious optimism” that was voiced during his final press conference. No timelines, no clear conditions under which the Fed will begin to normalize monetary policy. Obviously, all these nuances will be clarified by representatives of the Congress. And just the answers to these questions can provoke increased volatility. In favor of the dollar or against it is an open question. Therefore, at the moment, take a wait-and-see attitude on the gbp / usd pair. If the head of the FRS admits the option of curtailing QE within the current year, the dollar will receive significant support. This fact will allow the bears of the pair to test the support levels of 1.3850 (the lower line of the Bollinger Bands on the daily chart) and 1.3800. If Jerome Powell focuses on the existing risks, buyers of gbp / usd will be able to demonstrate corrective growth again, the “ceiling” of which is still marked at 1.3990 (the upper border of the Kumo cloud, coinciding with the Tenkan-sen line on D1). – Source: InstaForex

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