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A successful vaccination program in Britain is beginning to bear fruit: strong macro statistics are pleasing to the eye, and the most zealous optimists believe that the UK economy will overtake the US in 2021. In particular, Goldman Sachs expects it to grow by an astounding 7.8%. In February, the bank forecast that US GDP would expand by 6.8% this year. The outpacing dynamics of the British economy allow the GBPUSD bulls to set ambitious targets.
Even though the busy economic calendar of the week by April 23 repeatedly created a tailwind for the sterling, the analyzed pair was marked by a fall to the base of the 38th figure, which was due to the correction of US stock indices and the "dovish" rhetoric of Christine Lagarde at a press conference on the results of the last ECB meeting. Lagarde's statement that it is premature to wind up the emergency purchase program backfired with the strengthening of the US dollar not only against the euro but also against other world currencies.
However, the "bulls" on GBP/USD quickly recovered their losses, and they had a reason for this. Unemployment in Britain was below expectations, core inflation accelerated from 0.9% to 1.1%, CPI - from 0.4% to 0.7% y/y, consumer confidence rose to its highest level since the start of the pandemic, and their expenses exceeded pre-crisis levels. The Confederation of British Industry said companies' hopes for a GDP recovery had peaked in 48 years. Retail sales skyrocketed 5.4% in March and business activity climbed all the way since November 2013. All indications point to a booming UK economy in the second quarter.
Dynamics of British inflation
Currently, 45.6 million people in Britain have received at least one dose, which is equivalent to 68.2% of the adult population. This fact reinforces the optimism of consumers, manufacturers, and especially service providers, whose businesses have been severely hit by COVID-19, and contributes to the strengthening of the pound. Moreover, its main adversary, the US dollar, is not as strong in April as in March.
Investors expect Jerome Powell to avoid scaring the financial markets. The Fed chairman is likely to keep his "dovish" rhetoric and will emphasize that the time has not yet come to wind down QE. This will not allow US Treasury yields to rise strongly and keep the S&P 500 from correcting. On the other hand, US President Joe Biden intends to voice his plans to almost double the capital gains tax. These changes will affect, first of all, wealthy Americans, who mainly own stocks. A rollback of stock indices can provide temporary support to the US dollar.
Technically, on the GBP/USD daily chart, there are Wolfe Waves and Broadening Wedge patterns. Correction in the direction of 50% of wave 4-5 within the last of them allowed the formation of longs. The pair reached the first of the three targets set in the previous material at 1.397, 1.412, and 1.417. We continue to buy it in the hope that other targets will also submit to the bulls.
GBP/USD, Daily chart
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