GBP/USD: the pound falls on the eve of the meeting of the Bank of England

 
 
 
 
 
 
 

The British pound was among the fall leaders at the beginning of the new trading week. The driver of its decline was the publication in the morning (at 06:00 GMT) of weaker-than-expected macro statistics, indicating a slowdown in the British economy. According to the report presented by the UK Office for National Statistics, the country's GDP fell in April (to -0.3% against the forecast of +0.2% growth and -0.1% decline in March). At the same time, all three main sectors of the economy (services, manufacturing and construction) decreased: manufacturing and industrial production decreased by -1% and -0.6%, and the PMI activity index in the services sector over the last 3 calculated months showed zero growth (against growth by +0.4% in March and the same forecast).

The pound fell sharply, including against the dollar, pulling the rest of the "major" currencies, which also affected the growth of the DXY dollar index. At the beginning of the European trading session, DXY futures rose to 104.69, up 54 points from Friday's closing price. DXY futures are again traded above 104.00, accelerating towards the local maximum since November 2002, reached last month at 105.06.

DXY Chart

On Tuesday, the Fed meeting begins, which will end on Wednesday with the publication of the decision on the interest rate. As expected, it can be increased by 0.50%. However, the decision may be tougher, which is expected by a significant part of market participants.

One way or another, the dollar maintains a positive trend, remaining among the leaders in the foreign exchange market. It is also actively sought after as a safe-haven asset. Investors avoid risks - one has only to look at the fall of stock indices, which are at risk of moving into the zone of a long-term bear market.

As for the pound and the GBP/USD pair, they fell sharply today, having received an acceleration from the publication of weak macro statistics on the UK. This is especially inappropriate for the pound on the eve of the meeting of the Bank of England, which will take place this Thursday.

In May, the Bank of England once again raised the interest rate (to 1.00%), signaling the possibility of further tightening of monetary policy.

However, the situation has changed, and now most economists believe that at this meeting, central bank' leaders will decide to refrain from making changes to the current monetary policy. The macroeconomic situation in the country is deteriorating, as evidenced by the disappointing report published today on the state of the economy. The country faces the threat of not only stagnation, but also stagflation in the economy (this is when the economy does not grow or even declines against the backdrop of accelerating and high inflation).

Moreover, if the rhetoric of the accompanying statements by the leaders of the Bank of England also turns out to be soft, then the pound and the GBP/USD pair are at risk of further decline.

GBP/USD Chart

We also remind that the Bank of England's interest rate decision will be published on Thursday at 11:00 (GMT). Tomorrow, the volatility in the pound quotes will rise again at 06:00 (GMT), when fresh data from the UK labor market will be published.