28.06.202111:55 Forex Analysis & Reviews: The pound lost its optimism after the Bank of England meeting

Last week, the British currency remained relatively calm. It did not experience such overloads like the American one, but market participants were looking forward to the results of the Bank of England meeting. According to its results, the pound lost some of its achievements, but tried to maintain the current dynamics.

According to analysts, the actions of the British regulator resemble the behavior of its American counterpart in many ways. The Bank of England, like the Federal Reserve, also considers the surge in inflation to be a temporary phenomenon that does not require drastic intervention by the monetary authorities. According to the statements of the representatives of the regulator, in the near future, inflation in the UK will exceed 3%, but this acceleration will be temporary. The department believes that there is no need to cancel incentives in the current situation.

At the meeting of the British regulator, the GDP forecast for the current year was also raised and the current monetary policy (DCP) was kept unchanged. As for the interest rate, it is left at the same level of 0.1%. At the same time, the Bank of England kept the asset purchase program unchanged, reducing the "hawkish" expectations of the market. However, the debate related to the level of inflation does not subside. According to Andy Haldane, chief economist of the Bank of England, the new forecast of the department that the growth of inflation above 3% may be low, and can provoke an increase in price pressure in 2021 and in 2022. Haldane stressed that the UK economy may face a violation of the 2% inflation target for a longer period than expected.

The current situation adversely affected the dynamics of the pound: it sank sharply. According to analysts, after the meeting of the regulator, the pound sterling fell by more than 500 points. This allowed the "bears" on GBP to take advantage, although their triumph was temporary. According to preliminary calculations, a "bearish" scenario is possible in the event of a breakdown of a significant support level of 1.3866. In such a situation, the quotes of the "British" can go to the levels of 1.3791 and 1.3749.

The current decline in the pound sterling was facilitated by the relatively "dovish" position of the Bank of England, which experts characterize as a wait-and-see approach. The market expects a rise in the key rate by mid-2022, which is why the dynamics of the pound has lost its growth momentum. However, there is still hope for an increase, especially in the GBP/USD pair, although the dollar, which rose sharply after the FOMC meeting, is trying to gain a foothold at new levels. Experts consider the nearest significant level to be 1.3707 and the minimum of the range of 1.3670, to which the 200-day moving average approaches. On the morning of Monday, June 28, the GBP/USD pair was trading near 1.3920, trying to climb higher, but without success. According to experts, as long as the GBP price is above 1.3845, buyers can seize the initiative from sellers. To do this, it is necessary to raise the pound above 1.4020, so that a peak of 1.4165 appears on the horizon.

The dynamics of the British currency in the GBP/USD pair is influenced by dollar support expressed in the implementation of the infrastructure plan of American President Joe Biden. Recall that at the end of last week, the US Senate approved the volume of monetary injections into the construction of infrastructure (new bridges, roads, water supply, "clean" energy, etc.) in the amount of $1.2 trillion. Experts expect a rise in the price of shares of companies that are beneficiaries of this infrastructure project.

However, the further growth of the yield on long-term US government securities remains in question. Recall that after the FOMC meeting, they collapsed sharply, but later began to recover. Experts believe that the reason for this is the reduction by the US Treasury of its balance sheet in the Fed, which creates a huge demand for treasuries due to the large-scale injection of liquidity into the economy. At the same time, many economists believe that this is a terrible sign, indicating that the Federal Reserve is unlikely to significantly raise or normalize interest rates.

The influence of the US currency on the British one, recorded in the GBP/USD pair, leaves much to be desired. Experts expect a difficult week for the dollar, and these difficulties will affect the pound. At the moment, the British currency is trying to find the balance that was disturbed after the meeting of the Bank of England, and the path to the price balance is quite thorny.