Summary:

• Thursday and Friday could be crucial for GBPUSD currency pair
• Bank of England is expected to move closer to an interest rate hike
• The US NFP report a chance for the US dollar
• GBPUSD remains in an upward trend, eyes 1.34

GBPUSD has seen a consistent upward trend as of late on the back of rising expectations for interest rate hike in the UK and a series of issues that haunted the US dollar. Both the pound and the US dollar will be scrutinized as Bank of England decides on monetary policy on Thursday and the key macroeconomic report is being released on Friday. In this analysis we present the two crucial events for days ahead and take a look at developments on the GBPUSD currency pair. 

Events:

Bank of England decision – Thursday 12:00pm BST

When a central bank meets a decision on interest rates is always the most important one. The main rate is currently at 0.25% in the UK after the Bank cut it from 0.5% in a response to Brexit referendum last year. A change of this rate is not anticipated for Thursday but markets are expecting a small step towards policy reversal later this year. Investors were surprised on the occasion of the last meeting when 3 out of 8 MPC members voted for interest hike, a change from 1 out of 8. Furthermore typically dovish Bank of England president Mark Carney and Chief Economist Andrew Haldane also provided arguments in favour of higher rates in the future. Therefore investors will pay a close attention if there are more members voting for higher rates and this could be decisive for the GBPUSD on Thursday. Be careful though, there was a change in the MPC – Kristin Forbes who voted for higher rates was replaced by Silvana Tenreyro. For this reason a 2 votes for a hike could be seen a sign that the Bank wants to “buy some time” while 3 or more votes would indicate that more members have become convinced that rates should be higher and a rate hike itself could take place soon. Higher rates are typically positive for the currency. 

Traders need to be watchful – a change in the MPC composition, where Tenreyro replaced Forbes, could have an impact on voting pattern and GBPUSD reaction. Source: Bank of England 

US non-farm payrolls report – Friday 1:30pm BST

US dollar has been under a heavy pressure as of late. The FOMC provided a mixed signal as it was worried about a slowing inflation and fresh turbulence in the White House rendered any meaningful economic reforms even less likely. The US dollar could use any support in present circumstances and what’s better opportunity if not the most anticipated NFP report. Recent reports have been mixed as employment growth slowed somewhat (6 months average is not at +180k, down from +193k at the end of 2016) but more importantly wage growth continues to undershoot expectations – it was just 2.4% y/y in the second quarter of this year, the lowest since the final quarter of 2015. This measure holds the key – the market consensus sees annual wage growth slowing down in July to 2.4% y/y from 2.5% in June. The report could be a chance for the US dollar – according to the CFTC data the US dollar is now one of the most oversold currencies by speculative capital so a bar of expectations have been lowered down considerably. 

A negative level of positioning in the US dollar used to lead to USD gains in the past. Source: Bloomberg, XTB Research 

GBPUSD chart

GBPUSD has been in an upward trend recently on the daily time-frame without any clear signs of a reversal. We can spot a series of higher lows and higher highs since the post-Brexit vote low in January. The main resistance seems to be at 1.34, a level that used to be a barrier for buyers late in 2016. At the moment it marks nearly 50% retracement of the post-Brexit vote slump on the pair. On the low side the market has been supported by a short-term trend line that currently runs at around 1.3060. 

 GBPUSD remains in an upward trend but could face a resistance at 1.34. Source: xStation5