GBPUSD has entered a consolidation phase, hovering around the 1.39 level following the recent retreat from highs around 1.4150 early in the week. The recent pullback was triggered by a number of factors, including stronger US dollar, unimpressive UK economic data, negative signals from the Brexit process, and a more cautious tone ahead of Bank of England’s “Super Thursday”.
The key question now is if the central bank hints about a possibility of a rate hike in May and thus bring back demand for the pound. The overall economic background in the country remains solid, and inflation is overshooting the 2% target. But the regulator may opt not to rush on as there are still uncertainties around the transition period that should be agreed by end-March. Besides, the recent UK economic figures, including the service PMI, are underwhelming, which may also make the Governor Mark Carney refrain from a straightly “hawkish” rhetoric.
Nevertheless, the pound still may gain some support tomorrow, even if the regulator prefers a more neutral stance. GBPUSD will resume the dominant bullish bias, should the central bank hint that it will tackle the rising UK inflation further and give positive comments on economy. It could be enough to push the currency above the 20-DMA around the 1.40 mark and send the pair to weekly highs above 1.4150.
By Helen Rush
Senior Analyst at Capital Markets