GBP/USD. May 25th. The governor of the Bank of England expects inflation to decrease by half
May 25, 2023 11:23 am
On the hourly chart, the GBP/USD pair rebounded from the corrective level of 100.0% (1.2447) on Wednesday, favoring the US dollar and resuming its downward movement. This morning, it reached the level of 1.2342. The descending trend corridor has changed its slope angle and again characterizes traders’ sentiment as “bearish.” A rebound from the quotes level of 1.2342 or 1.2295 will favor the British pound and may lead to some growth towards the Fibonacci level of 100.0% (1.2447).
In addition to the Federal Reserve’s protocol, which was released yesterday evening and is considered “hawkish,” supporting the continued rise of the US currency, there was also a new speech by Bank of England Governor Andrew Bailey, who had already spoken in Parliament this week. The key theses of his two speeches are as follows. First, Bailey expects inflation to halve by the end of the year. Second, Bailey does not believe that the recent data indicates the formation of an “inflationary spiral.” Third, Bailey positively assesses the decrease in gas and food prices. Fourth, he supports further tightening of monetary policy.
Yesterday’s inflation report in the UK was contradictory, as the main inflation indicator decreased to 8.7%, falling below 10% for the first time in the last eight months. However, at the same time, the core inflation indicator increased again and reached 6.8%. Therefore, in my opinion, the Bank of England should also maintain its “hawkish” rhetoric, which it is currently doing. However, all this information did not help the British pound. It continues to decline as bullish traders have exhausted their potential, and even good news can no longer generate buying interest in the pound.
The reasons for the pair’s current decline are unrelated to the information background. The daily chart shows that the British pound has grown for a long time (almost a year), and now it may be time for a correction. The decline of the pair may continue regardless of incoming data. Only negative news from the US or positive news from the UK can revive bullish interest in buying the pound.
On the 4-hour chart, the pair has consolidated below the level of 1.2441, allowing traders to anticipate further decline toward the next corrective level of 127.2% (1.2250). The bullish divergence in the MACD indicator has prevented significant growth of the British pound. I am not currently expecting a strong rise in the pound. I anticipated the pair’s decline a month ago when it closed below the ascending trend corridor.
News calendar for the US and the UK:
USA – GDP for the first quarter (12:30 UTC).
USA – Initial Jobless Claims (12:30 UTC).
Thursday’s economic calendar contains only two entries; the US GDP report is the highlight. The impact of the information background on traders’ sentiment for the rest of the day may be weak.
Forecast for GBP/USD and trader recommendations:
I advised selling the British pound on a new close below 1.2441 on the 4-hour chart with a target of 1.2342. This target has been reached. New sales or maintaining existing ones can be considered a close below the levels of 1.2342 and 1.2295 with a target of 1.2201. Buying the British pound can be considered close to the descending trend corridor on the hourly chart with a target of 1.2546.
The material has been provided by InstaForex Company – www.instaforex.com
On the hourly chart, the GBP/USD pair rebounded from the corrective level of 100.0% (1.2447) on Wednesday, favoring the US dollar and resuming its downward movement. This morning, it reached the level of 1.2342. The descending trend corridor has changed its slope angle and again characterizes traders’ sentiment as “bearish.” A rebound from the quotes level of 1.2342 or 1.2295 will favor the British pound and may lead to some growth towards the Fibonacci level of 100.0% (1.2447).
In addition to the Federal Reserve’s protocol, which was released yesterday evening and is considered “hawkish,” supporting the continued rise of the US currency, there was also a new speech by Bank of England Governor Andrew Bailey, who had already spoken in Parliament this week. The key theses of his two speeches are as follows. First, Bailey expects inflation to halve by the end of the year. Second, Bailey does not believe that the recent data indicates the formation of an “inflationary spiral.” Third, Bailey positively assesses the decrease in gas and food prices. Fourth, he supports further tightening of monetary policy.
Yesterday’s inflation report in the UK was contradictory, as the main inflation indicator decreased to 8.7%, falling below 10% for the first time in the last eight months. However, at the same time, the core inflation indicator increased again and reached 6.8%. Therefore, in my opinion, the Bank of England should also maintain its “hawkish” rhetoric, which it is currently doing. However, all this information did not help the British pound. It continues to decline as bullish traders have exhausted their potential, and even good news can no longer generate buying interest in the pound.
The reasons for the pair’s current decline are unrelated to the information background. The daily chart shows that the British pound has grown for a long time (almost a year), and now it may be time for a correction. The decline of the pair may continue regardless of incoming data. Only negative news from the US or positive news from the UK can revive bullish interest in buying the pound.
On the 4-hour chart, the pair has consolidated below the level of 1.2441, allowing traders to anticipate further decline toward the next corrective level of 127.2% (1.2250). The bullish divergence in the MACD indicator has prevented significant growth of the British pound. I am not currently expecting a strong rise in the pound. I anticipated the pair’s decline a month ago when it closed below the ascending trend corridor.
News calendar for the US and the UK:
USA – GDP for the first quarter (12:30 UTC).
USA – Initial Jobless Claims (12:30 UTC).
Thursday’s economic calendar contains only two entries; the US GDP report is the highlight. The impact of the information background on traders’ sentiment for the rest of the day may be weak.
Forecast for GBP/USD and trader recommendations:
I advised selling the British pound on a new close below 1.2441 on the 4-hour chart with a target of 1.2342. This target has been reached. New sales or maintaining existing ones can be considered a close below the levels of 1.2342 and 1.2295 with a target of 1.2201. Buying the British pound can be considered close to the descending trend corridor on the hourly chart with a target of 1.2546.
The material has been provided by InstaForex Company – www.instaforex.com
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