GBP/USD. Weak British GDP growth, delta strain and inflation expectations

The pound, paired with the dollar, continues to regularly work out the levels, consistently starting from the boundaries of the 150-point price range of 1.3750-1.3900. The sterling has been holding such a wide echelon for two weeks – since the end of June. The contradictory fundamental background allows traders to open short positions at the upper border of the above corridor and, accordingly, long positions around the middle of the 37th figure.

Today, GBP/USD once again pierced the resistance level of 1.3900, moving by the inertia of Friday's trading. But as soon as the pair overcame this target, it once again attracted sellers who pulled the price to the equator of the 38th figure. The market is "winning back" disappointing data on the growth of the British economy (which were published on Friday), as well as the latest coronavirus reports indicating a difficult epidemiological situation in the UK. All these factors have supplemented the rather gloomy fundamental picture that has developed for the pair. The corrective pullbacks that have been taking place over the past 2 weeks are mainly due to the situational weakness of the US currency. While the pound itself is under the background pressure of the "dovish" position of the Bank of England.

analytics60ec49c5b05b4.jpg

Let me remind you that the head of the British regulator, Andrew Bailey, reacted rather coolly to the record increase in inflation in the country. He almost literally repeated the rhetoric of Jerome Powell, saying that the Bank of England should not react to a sharp increase in inflation. According to him, this growth is likely to be temporary and will include only the period of recovery of the UK economy after the coronavirus crisis. At the same time, Bailey added that the reasons why the Central Bank believes that the growth of inflation will not be sustainable are "quite reasonable". Similar rhetoric was voiced by other representatives of the British regulator.

The data on the growth of the British economy published on Friday can only strengthen the "dovish" position of the representatives of the Bank of England. Thus, the volume of UK GDP in May increased by only 0.8%. For comparison, in April, when the country had stricter quarantine restrictions, this indicator reached the 2% mark. According to preliminary forecasts, the British economy was expected to accelerate by 1.5% in May. But the real result turned out to be much weaker than the forecasts. In annual terms, the indicator was supposed to reach 3.9%, but it came out at 3.6%.

The indicators of industrial production also disappointed. On a monthly basis, the indicator rose by only 0.8%, while experts expected it to be at around 1.3%. A similar situation has developed in the processing industry: with the forecast of growth to 0.9%, the volume of production decreased by 0.1%. In the construction sector, both indicators also came out in the "red zone" – both in annual and monthly terms. In the service sector, despite some weakening of the quarantine, the indicator could not reach the forecast levels. I repeat, last Friday, we learned the May data, which a priori could not be too positive (since at that time many restrictions were still in effect). But in this case, too weak recovery rates of key indicators are alarming. And most likely, the published figures will alarm not only traders but also members of the British regulator.

However, it is not only weak macroeconomic reports that put pressure on the pound. Among the main downward factors are "coronavirus reports". Over the past day, more than 30,000 (31,772) cases of COVID-19 infection have been registered in the UK. For comparison, it should be noted that in early June, the daily increase was at the level of 3,000-5,000, in mid-June - at the level of 7,000-10,000, at the end of June - at the level of 12,000. In other words, the negative dynamics is clear. According to the British media, Downing Street is now considering the possibility of maintaining a number of quarantine restrictions after July 19, which has already been dubbed "Freedom Day" (from this day almost all restrictions should be lifted in the country). This is due to the spread of a dangerous strain of coronavirus "Delta", as well as an even more dangerous and contagious "Delta +".

Thus, the overall fundamental picture does not contribute to the growth of the British currency. The dollar, in turn, is waiting for US inflation data, which will be published tomorrow. If the data released turned out to be in the "red zone", the GBP/USD pair will again be able to test the upper limit of the range of 1.3750–1.3900. But note that the following day, that is, on Wednesday, July 14, we will find out the key data on the growth of British inflation. According to preliminary forecasts, the consumer price index will slow down to 0.2% on a monthly basis (at least since February of this year). According to a number of analysts, the indicator may even go into a negative area, for the first time since January. If these pessimistic forecasts come true, the GBP/USD pair will be under significant pressure regardless of the greenback's reaction to the US inflation release.

analytics60ec49b7a3edd.jpg

Summarizing the above, we can assume that the GBP/USD pair will continue to trade in the price range of 1.3750-1.3900 in the medium term (the lower line of the Bollinger Bands on the daily chart is the lower border of the Kumo cloud on H4). When approaching the lower limit of the range, it is advisable to consider longs, while ascending impulses to the 39th figure can be used as an excuse to open short positions.

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

Pages