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GBP/USD. "Hawkish notes" from the Bank of England and farewell speech by Queen Elizabeth II

The pound is trapped in the grip of conflicting fundamental factors. In the morning, the British currency received unexpected support from the Bank of England, which allowed an increase in the interest rate next year in spite of everything. However, it was already in the afternoon that the GBP/USD bears were able to seize the initiative for the pair, against the backdrop of the speech of Queen Elizabeth II in the walls of the British Parliament. Brexit's political prospects are again worrying market participants, although parliament has not yet had time to approve the deal, and London and Brussels have not even begun preliminary negotiations as part of the transition period. But traders live "the day after tomorrow", evaluating the prospects for concluding a trade agreement. Thus, the comments of top British politicians only increase nervousness about this, overshadowing the influence of all other fundamental factors.

Nevertheless, let's start everything with the December meeting of the Bank of England. To the surprise of most traders, the meeting of the members of the English regulator took place on a major note. The central bank could increase pressure on the pound by allowing interest rates to decline early next year. Recent macroeconomic reports have shown a slowdown in key indicators, so the Central Bank had appropriate arguments to soften its rhetoric. However, the Bank of England provided an opportunity for the British economy to get out of the "red zone" on its own, without additional incentives in the form of QE or lower rates. The risk of a "hard" Brexit has decreased to zero, the probability of approval of the transaction is almost 100 percent, and before the end of the transition period more than a year. Such conditions allow the English regulator to take a wait-and-see attitude, even despite the decline in key economic indicators.

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At the same time, the "dovish wing" of the Committee did not intensify, contrary to the fears of some analysts: only Saunders and Haskel voted to reduce the rate, preserving the alignment of forces in the form of a ratio of 0-2-7. Just a day before the meeting, rumors appeared in the market that Gertjan would join them. But in the end, these assumptions were not confirmed. And this fact would certainly have put significant pressure on the pound, although his voice would not have been decisive in any case.

In general, the rhetoric of the English regulator was restrained and optimistic. The Bank of England acknowledged that it is too early to talk about the impact of the results of parliamentary elections on the country's economy. The members of the Committee even doubt that the political uncertainty after December 12 was weakened - apparently, they had in mind the ups and downs that had begun regarding the transition period. Further prospects for monetary policy are still unclear: the Bank of England promised to "support" the British economy if the trade conflict between the US and China continues to have a negative impact on the global economy, and the uncertainty surrounding Brexit continues.

On the other hand, regulator members did not specify exactly how they intend to do this, however, most analysts are inclined to the option of lowering the interest rate (the option of additional incentives is less likely). On the other hand, if the above risks will not happen, then the English regulator allows a "smooth and restrained" tightening of monetary policy parameters. This means that the Central Bank does not exclude one round of rate hikes if the trade war does not develop, and the negotiation process between London and Brussels will take place in a constructive manner within the transition period.

Against the backdrop of such prospects, the pound has risen in price all over the market (although temporarily) - traders clearly did not expect to hear such "hawkish" notes from the Bank of England members in the accompanying communique, although the remaining rhetoric of the Central Bank are no longer so optimistic. In particular, the Bank of England revised its forecast for British GDP growth in the fourth quarter towards a deterioration - from + 0.2% to + 0.1% q / q. At the same time, the Central Bank acknowledged that the investment climate in the country could significantly improve in the near future, as many companies and enterprises will return to those investment projects that were frozen due to the risks of the "hard" Brexit.

As for inflation, the regulator predicts a further decline, which should reach its peak in the spring of next year, mainly due to cheaper energy. In turn, the labor market does not bother Central Bank members so far, although they have recognized the fact that wage growth has slowed down (taking into account premiums, wages have grown by only 3.2% - the weakest dynamics since April this year). Nevertheless, the cost of labor, according to regulator members, is growing at rates that exceed levels that are consistent with medium-term inflation targets. The Bank of England also noted "certain signs of recovery" in the global economy, while focusing on easing tensions between the United States and China.

Thus, the results of the December meeting of the English regulator were in favor of the British currency. The rhetoric of the members of the Committee, of course, cannot be called too "hawkish." But against the background of recent releases, the tone of the BA accompanying statement was quite optimistic.

However, the pound could not resist its conquered positions. The fact is that Queen Elizabeth II delivered an opening speech at the opening ceremony of the new parliament session today. She announced a government program that, inter alia, stated that the transition period should end before January 31, 2020. This scenario, according to the Queen, is a priority for the new government. The Queen's speech is a reflection of the course of the Prime Minister, that is, in this case, Boris Johnson. Thus, the market became convinced again that the conservative leader was going to take an extremely tough position in the upcoming negotiations with Europe, especially against the background of an absolute majority in parliament. Now, the pound has come under pressure although we are talking about fairly distant events.

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From a technical point of view, the GBP/USD pair is located on the midline of the Bollinger Bands indicator on the daily chart and has the potential for further decline - up to 1.2780, that is, to the lower line of the above indicator, coinciding with the upper border of the Kumo cloud on the same time-frame.

The material has been provided by InstaForex Company - www.instaforex.com