Today, the GBP/USD pair updated a three-year high, reaching the level of 1.4248. The last time the price was at such peaks was in January 2018 on the wave of another optimism about Brexit prospects. At the moment, the market is also dominated by optimistic moods about the recovery of the British economy and the tightening of monetary policy parameters. Nevertheless, the main driver for the GBP/USD growth is the US currency, which is actively losing its positions throughout the market. During the Asian session on Tuesday, the US dollar index returned to the 89th figure area, reflecting the skepticism of traders towards the dollar. This is despite the fact that the price of the US dollar increased against the basket of major currencies last Friday, as if reminding that it is too early to abandon it. However, the next rise turned out to be fleeting again: over the past months, the USD immediately accelerates and fades just as quickly, under the onslaught of the Fed's "dovish" position.
Despite numerous attempts, the dollar bulls were unable to develop a large-scale rally. The information picture is too contradictory, while any ambiguity plays against the US currency. There is always one problem, which hinders the national currency to grow.
For example, the dollar received support from the White House budget initiative at the end of last week. The US President has presented a draft budget for the fiscal year 2022 in the amount of $ 6 trillion, which begins on October 1. If the budget is passed, the country's spending level will be the highest since the Second World War. But the keyword here is "if". Republicans have already called the budget "unimaginably expensive" and have strongly opposed tax increases. Congressional Democrats have not yet voiced a consolidated position on the proposed document. And although representatives of the Democratic Party control both houses of Congress, experts say that it will be quite difficult for the White House to pass it to the Senate. In the Upper House of Congress, the power ratio is 50/50, along with the deciding vote of the US Vice President. Therefore, in this case, Biden will need to enlist the support of every Democratic senator.
Given the upcoming political battles, the "Biden's big-budget" only provided temporary support for the US dollar and did not become a catalyst for its long-term growth.
The "hawkish" hints of the Fed representative Mary Daly also provided only short-term support. The fact is that many of her colleagues have spoken out over the past two weeks, voicing the opposite position. The latest inflation data (consumer price index, RSE index) will be discussed at the Fed's June meeting, but this fact cannot be interpreted as the intention of the regulator to adjust the parameters of monetary policy. Most representatives of the Federal Reserve expressed their commitment to accommodative policy, despite the unusual growth of inflation indicators, which is primarily due to the low base of last year. In other words, it is too early to talk about the "hawkish" mood among the Fed members. Therefore, Daly's rhetoric provided only temporary support for dollar bulls.
In turn, the pound is strengthening its position for several reasons. In particular, the British currency received support from inflation reports during the previous week. The consumer price index in annual terms has been consistently rising for the past three months. In April, it surged to 1.5%, against its previous value of 0.7% in March. April saw the highest growth rate since March 2020. On a monthly basis, the index also showed positive dynamics, rising to 0.6%, which is the annual maximum.
The Bank of England's representatives are also cautious about inflationary trends, but they allow the implementation of a "hawkish scenario", without specifying any time targets. In particular, the Deputy Head of the British regulator Ben Broadbent allowed a gradual tightening of monetary policy in mid-May under certain conditions. According to him, the Central Bank needs "clear signs of a steady recovery in inflation in the direction of the target level" for this. These words have acquired a special meaning after the last inflation release.
In addition, the British currency is also supported by the fact that the UK will actually return to normal life on June 21 due to the relaxation of quarantine restrictions and active vaccination rates. The country is a leader in the world in terms of immunization rates: almost 40 million Britons (out of 47 million adults) have already received the first dose, while almost 25 million have completed vaccination after receiving both doses.
Thus, the fundamental picture for the GBP/USD pair is in favor of the pound and not only due to the weakness of the US currency, but also due to the "attractiveness" of the British currency. Here, any more or less massive price declines in the pair can be used to open long positions.
From the technical point of view, the price on the higher timeframes (D1, W1, MN) is either on the upper line of the Bollinger Bands indicator or between the middle and upper lines, which indicates the priority of the upward direction. On the daily and weekly charts, the Ichimoku indicator has formed a bullish signal "Parade of Line", when the price is above all the indicator lines, including the Kumo cloud. This signal also indicates a bullish sentiment. The main upward target in the medium term is the level of 1.4290 – upper line of the Bollinger Bands indicator on D1.
The material has been provided by InstaForex Company - www.instaforex.com