24.06.202123:24 Forex Analysis & Reviews: GBP/USD. 0: 1 not in favor of the pound

The results of the June meeting of the Bank of England were not in favor of the British currency. The pound/dollar pair tested the 38th figure area, as it impulsively decreased by 70 points. However, as soon as the pair plunged below the 1.3900 mark, the bulls who were trying to extinguish the downward momentum became more active on the market. Such behavior from GBP/USD says that firstly, market participants are not ready to invest in the dollar, and secondly - are not ready to be disappointed. Especially since the results of today's meeting can be called "disappointing" only with some stretch.

In addition, some of the theses voiced were supposed to, on the contrary, support the British currency, strengthening the bullish sentiment for the pound-dollar pair. But the pound found itself in a kind of trap of inflated expectations of traders. Just a few days ago, unconfirmed information appeared in the media that the British central bank would "go the way of the Federal Reserve", tightening its rhetoric and announcing a reduction in the volume of the asset repurchase program. Moreover, some "hotheads" among journalists suggested that the British central bank will decide to raise the rate before the Fed - that is, next year. And they say that the central bank will sound the appropriate signals at the June meeting. Such assumptions were voiced by various specialized internet resources, while the most authoritative publications of the WSJ, Financial Times, Reuters, Bloomberg allowed only an increase in the number of those who would vote for a reduction in QE volumes.

Unfortunately for the GBP/USD bulls, the hawkish forecasts of journalists and experts did not come true. The central bank took a cautious and wait-and-see position, thereby exerting a little pressure on the pair. The chief economist of the British central bank, Andy Haldane, was the only one who voted for the termination of purchases of gilts under the quantitative easing program. At the same time, some analysts suggested that some of his colleagues might support Haldane – according to one information, John Cunliffe was supposed to join the hawk wing, according to other information, both Cunliffe and Dave Ramsden. But this did not happen: according to the results of the June meeting, the votes were distributed as follows: "0-1-8" (i.e. no one supported the idea of increasing the volume of QE, 1 member of the Committee supported reducing the program and 8 representatives of the Bank of England spoke in favor of maintaining the status quo).

Supporters of the bullish scenario were betting on inflation, which showed record growth in Britain. Let me remind you that, according to the latest data, the May consumer price index in the country jumped to 2.1% compared to the same period last year (with a forecast of growth to 1.8%). While the April indicator came out at the level of one and a half percent. The rate of acceleration of inflation has become the highest since July 2019. For the first time in the last two years, the indicator exceeded the target level of the central bank.

But representatives of the Bank of England offset the optimism of GBP/USD bulls regarding the possible tightening of monetary policy parameters. In their opinion, the increase in inflation is temporary, while the central bank intends to raise interest rates only when inflation stabilizes near the target 2%, and the situation on the labor market "noticeably improves".

At the same time, representatives of the British central bank quite positively assessed the dynamics of key macroeconomic indicators, saying that "the growth rate of the British economy may be higher than predicted at the previous meeting in May." Also, the members of the central bank admit that the upward pressure on prices may be significantly stronger than expected. But since the growth of GDP and inflation, according to the Bank of England, will be temporary, the central bank does not plan to tighten the parameters of monetary policy in the near future.

In general, the June meeting of the Bank of England is somewhat similar to the April meeting of the Fed, which took place immediately after the publication of resonant data on the growth of inflation in the United States. Representatives of the Fed assured market participants that they would not deviate from the "set course" on the basis of only one single release. However, the May report was followed by the June one, which also came out in the green zone, reflecting the record growth rates of the consumer price index in America. This circumstance forced the members of the US central bank to tighten their rhetoric at the last meeting. It is likely that the members of the British central bank will also toughen their rhetoric at the next meeting in August. Especially if the inflation indicators in the UK continue to show an active growth rate. In the final communique, the Bank of England indicated that the members of the Committee will be able to give a "more complete assessment of the prospects for the economy" in August, when new economic forecasts will be published. Therefore, the June meeting, by and large, can be considered a "passing" one. And if it were not for the inflated expectations of traders, the pound could have ignored the results of today's meeting altogether. After all, by and large, the English central bank did not say anything new today, repeating the theses already voiced earlier.

Actually, the downward momentum of GBP/USD did not continue for this reason. As soon as the pair plunged into the area of the 38th figure, the bears closed short positions and lay down to drift. US reports also contributed to the damping of the downward momentum. In particular, the volume of orders for long-term goods in the United States (excluding transport) increased by only 0.3%, with growth forecast to reach 1.2%. The growth rate of initial applications for unemployment benefits also came out in the red zone, increasing the background pressure on the greenback.

In my opinion, the market will win back the dovish results of the June meeting of the Bank of England over the next day. However, the current price decline can be used to open long positions - especially if the pair is approaching the support level of 1.3840 (the lower line of the Bollinger Bands on the daily chart). The goal of the upward pullback is the price high of the current week - the 1.4000 mark.