empty
27.03.2023 02:31 PM
GBP/USD: Pound strengthens on improved macro statistics and hawkish BoE

The Bank of England is changing its mind, and encouraged by its unwillingness to hint at the end of the monetary policy tightening cycle, the pound feels like a fish out of water. Everything goes to the fact that the recession in the U.S. economy will come faster than in Britain, which inspires the GBPUSD bulls to new attacks. And even a new wave of panic around the European banking system in general and Deutsche Bank, in particular, did not scare sterling fans much.

In March, the Bank of England raised the repo rate for the 11th time in a row by 25 bps and brought it to 4.25%, the highest since the global financial crisis of 2008. It said the country's banking system remains resilient and that it may need to raise borrowing costs further to fight inflation. This message contrasts with Andrew Bailey's recent speech, which warned markets against betting on higher borrowing costs. Although, that's not the only change in BoE's sentiment.

Dynamics of the repo rate and inflation in Britain

This image is no longer relevant

Four months ago, the Bank of England predicted a prolonged and deep recession for five consecutive quarters, making reference to the energy crisis and the negative consequences of Brexit. In March, Bailey said that there is a very high probability that the British economy will avoid a recession this year.

Indeed, despite February's unexpected jump in inflation from 10.1% to 10.4% on an annualized basis, the population continues to spend aggressively, and businesses report expanding their activities. UK retail sales, for example, rose 1.2% in the final month of the winter after rising 0.9% month-on-month in January. Despite the composite Purchasing Managers' Index down from 53.1 to 52.2 in March, the index is above the critical 50 mark, indicating that the economy is expanding.

Dynamics of business activity in Britain

This image is no longer relevant

Thus, the discrepancies are obvious. If because of the banking crisis, investors are increasingly talking about an imminent recession in the United States, the Bank of England has changed its mind and says that there will not be a recession. Jerome Powell signaled a pause in the Fed's tightening of monetary policy, with the derivatives market giving an 87% chance of keeping the federal funds rate at 5% in May. At the same time, investors expect the repo rate to continue rising.

This image is no longer relevant

Divergences in economic growth and in the monetary policy of central banks create a solid foundation for an upward trend in GBPUSD. Of course, no trend is complete without corrective movements, but pullbacks, for instance, related to the panic about the banking crisis, makes sense to use for buying sterling against the U.S. dollar.

Technically there is a high probability that GBPUSD will leave the medium-term consolidation range of 1.18–1.24 and will restore the bullish trend. We remain focused on long positions in the direction of the previously announced targets at 1.235 and 1.26.

Marek Petkovich,
Analytical expert of InstaForex
© 2007-2025
Select timeframe
5
min
15
min
30
min
1
hour
4
hours
1
day
1
week
Earn on cryptocurrency rate changes with InstaForex
Download MetaTrader 4 and open your first trade
  • Grand Choice
    Contest by
    InstaForex
    InstaForex always strives to help you
    fulfill your biggest dreams.
    JOIN CONTEST

Recommended Stories

Recent gas market developments

The gas market saw an uptick following the announcement by US President Donald Trump of a state of emergency in the US oil and gas sector, along with his approval

Miroslaw Bawulski 11:41 2025-01-21 UTC+2

USD/JPY: Analysis and Forecast

The current position of the Japanese yen reflects a complex balance between the positive sentiment in equity markets and expectations of interest rate hikes by the Bank of Japan

Irina Yanina 11:37 2025-01-21 UTC+2

USD/CAD: Donald Trump's Tariff Statements for Canada Shake the Market

The USD/CAD pair shows a correction after significant intraday growth. The Canadian dollar weakened under selling pressure after U.S. President Donald Trump announced plans to impose 25% tariffs on imports

Irina Yanina 11:29 2025-01-21 UTC+2

Overview of the GBP/USD Pair on January 21: The Pound Clings to a Straw

The GBP/USD currency pair experienced growth on Monday, coinciding with the start of the U.S. trading session. It's important to note that this growth did not stem from any specific

Paolo Greco 05:19 2025-01-21 UTC+2

Overview of the EUR/USD Pair on January 21: Trump's Inauguration Changes Nothing

The EUR/USD pair traded relatively calmly on Monday, at least during the first half of the day. However, with the opening of the U.S. session, volatility surged sharply. The subsequent

Paolo Greco 05:19 2025-01-21 UTC+2

EUR/USD: The Illusion Bubble – Dollar Weakens Amid Strengthened Risk Sentiment

Markets are optimistic ahead of Donald Trump's inauguration. Increased risk appetite has allowed EUR/USD buyers to recover from Friday's lows, with the pair now trading above the 1.0300 target

Irina Manzenko 23:40 2025-01-20 UTC+2

USD/CAD: Analysis and Forecast

The USD/CAD pair retreated slightly after reaching its highest level since March 2020 during the Asian session on Monday, amid a modestly weaker US dollar. However, this pullback

Irina Yanina 13:23 2025-01-20 UTC+2

The Market Finds Shelter

The S&P 500 achieved its best weekly performance since the November U.S. presidential election, just before Donald Trump's inauguration. Initially, investors worried that his protectionist policies could negatively impact

Marek Petkovich 08:02 2025-01-20 UTC+2

EUR/USD Weekly Preview: Trump's Inauguration, Lagarde's Speech, ZEW and PMI Indices

The economic calendar for the upcoming week is not packed with significant events. Key reports for EUR/USD (Nonfarm Payrolls, CPI, PPI) were released in the first half of January, while

Irina Manzenko 05:24 2025-01-20 UTC+2

Overview of the GBP/USD Pair on January 20: The Fairy Tale Is Over, but There Was Never a Fairy Tale

On Friday, the GBP/USD currency pair experienced another decline. Among the macroeconomic data released that day, one notable highlight was yet another disappointing data from the UK. Although

Paolo Greco 04:46 2025-01-20 UTC+2
Can't speak right now?
Ask your question in the chat.
Widget callback
 

Dear visitor,

Your IP address shows that you are currently located in the USA. If you are a resident of the United States, you are prohibited from using the services of InstaFintech Group including online trading, online transfers, deposit/withdrawal of funds, etc.

If you think you are seeing this message by mistake and your location is not the US, kindly proceed to the website. Otherwise, you must leave the website in order to comply with government restrictions.

Why does your IP address show your location as the USA?

  • - you are using a VPN provided by a hosting company based in the United States;
  • - your IP does not have proper WHOIS records;
  • - an error occurred in the WHOIS geolocation database.

Please confirm whether you are a US resident or not by clicking the relevant button below. If you choose the wrong option, being a US resident, you will not be able to open an account with InstaForex anyway.

We are sorry for any inconvenience caused by this message.