Over the past month, the GBPUSD pair has moved from a smooth decline to a real collapse - from the April maximum, the decline exceeded 7%. Quotes has reached the minimums since the spring 2020. And while there is no reason for a reversal of tendency upward.
Yesterday US statistics on inflation for April was published. The indicator has decreased from the March level of 8,5% to 8,3%. But nothing to be happy about: a more significant decline was expected, to 8,1%. Moreover, core inflation (excluding fuel and food prices) has accelerated its growth from 0,3% to 0,6% month to month. And if you take into account the May news about new record prices for gasoline in the US, the picture is quite bleak.
All this leaves no doubt about the continuation of the tightening of the Fed's monetary policy. Raising the key rate in 0,5% at meetings in June and July will bring it to the level of 2%. Thus, the rate in the US will exceed the level set by the Bank of England (the rate is 1% in both countries at the moment). The British regulator is unlikely to be able to respond to such a step by its American colleagues.
Today has come the statistics on the economy of the United Kingdom. There is a deterioration in almost all indicators:
1) GDP - growth by 0,8% per quarter. Not as bad as in the US (there is a drop of 1,4%). But within the quarter, the dynamics are depressing: an increase in January, a zero change in February and a 0,1% decline in March.
2) Trade balance: an increase in deficit from 21,61 to 23,9 billion pounds.
Extremely high prices for imported raw materials, primarily oil and gas, work to weaken the British currency.
3) Industrial production. Growth for the quarter by 0,7%, but again provided only by January: a drop of 0,6% and 0,2% in February and March.
The state of the British economy will clearly not allow the Bank of England to tighten monetary policy faster than the Fed is doing now. In addition, the dollar's defensive status also does not play in favor of the growth of the GBPUSD.
The nearest GBPUSD target is minimum of May 2020 at the level of 1,208
The following trading strategy is possible:
Sell GBPUSD at the current price. Take profit – 1,208. Stop loss – 1,228.
Also, traders, at their own discretion, instead of a fixed Stop loss, can use Trailing stop when the price moves down.
This content is for informational purposes only and is not intended to be investing advice.
