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In the center of investors' attention, central banks will be in place by August 3. Following the ECB, which intends to keep rates at current levels, at least until September 2019, regulators from Japan, the United States, and Britain will have their say. The BoJ, after several months of hibernation, is ready to make adjustments to the strategy of managing the yield curve (at least, rumors circulate on the market and move rates on bonds around the world). The Fed needs to come up with something in response to the criticism of its activities by Donald Trump. However, the most interesting is the meeting of the Committee for Monetary Policy BoE.
Currently, every eighth out of ten experts Bloomberg expects that in early August, the Bank of England will raise the repo rate from 0.5% to 0.75%. The futures market estimates the chances of such an outcome to be almost 90%. If in fact this does not happen, we expect large-scale sales of the GBP / USD pair. Otherwise, the future of the pair will depend on the hints of the Central Bank on the continuation of the cycle of normalization of monetary policy.
Money restriction is a powerful growth driver for any currency. However, the GBP / USD pair has been trading in the range of 1.3-1.34 for the past few weeks. The reason for this is a strong dollar and political risks. The US currency strengthened in April-July against competitors from the G10 because of the faith of investors in the bright future of the US economy. A large fiscal stimulus drove it to 4.1% in the second quarter, which is the best indicator since 2014. Will this figure become a lone peak or will the US continue in the same spirit? The answer to this question will determine the fate of dollar pairs in Forex.
The pressure on sterling creates confusion in the government and Brussels' reluctance to accept the drafts of the divorce presented by Theresa May within the framework of Brexit. Despite the fact that both sides have declared their desire to reach an agreement by the middle of autumn, it is still there. This circumstance has lowered the risks of the pound's reversal to the minimum since the referendum on Britain's membership in the EU. Simply put, investors are more likely to buy insurance against the fall of GBP than hedge the risks of the growth of the currency of the United Kingdom.
Dynamics of pound reversal risks
Concerning the forthcoming meeting of the Bank of England, investors are most concerned with two questions: how many MPC members will vote against raising the REPO rate, and what level of neutral interest rate does BoE see? According to Bloomberg, it should be at 1.5-1.75%. If the Central Bank sees the figure higher, it will follow the path of active normalization of monetary policy, which will support the bulls in the GBP / USD. On the contrary, a low indicator value will mean that for three years, the regulator will remain committed to slow normalization. So, the urgent market gives only a 40% chance that the repo rate will be raised after August by another 25 points within three years.
Technically, to activate the "Wolfe Wave" pattern, the "bulls" for GBP / USD should be storming the resistance at 1.32 and 1.329. On the contrary, the update of the July low will open the way for the "bears" to the south in the direction of 1.28 and 1.262.
GBP / USD, daily chart
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