GBP Rises on COVID Threat Reduction
GBP bulls are back in business this week with the UK currency rallying firmly against the majority of its main trading counterparts. The catalyst behind the move was the announcement yesterday that the COVID alert level in the UK has been reduced from Level 4 to Level 3. This means that the infection is now no longer seen as a critical threat and is classed as having moved into “general circulation”. With this move, the UK government has the green light to continue with plans to ease lockdown measures further as of next Monday.
UK Restrictions to Ease Further
As of May 17th, the UK hospitality sector is set to receive a huge boost with the return of indoor custom. Although, social distancing measures and mask wearing will need to be maintained, the admission of diners and drinkers back inside premises means that the huge number of businesses which have remained closed over most of the lockdown will now be able to re-open.
With re-opening set to take the UK another step closer towards normality, inflation expectations are rising. The BOE has noted its expectations for inflation to rise given the pent-up level of demand in the economy and the easing of restrictions, with many economists forecasting brits to go on a spending spree over the summer, particularly given that foreign holidays are still in doubt.
BOE Pushing Back Against Inflation Expectations
Despite the expectations of a pickup in inflation, however, the BOE has been keen to caution that it does view such a spike as temporary and maintains that it has not plans yet to remove monetary policy easing. At the latest BOE meeting last week, the BOE acknowledged the improvement in the economy and the better outlook as a result of vaccine success and success with reopening. However, the BOE chief noted that it does not yet see any change in its monetary policy approach this year.
BOE’s Bailey to Speak Later Today
Later today, markets will receive the latest from the BOE governor whose comments will be carefully scrutinised to see if there has been any shift in the bank’s view. If the BOE governor is seen to be any more wary of inflation this could provide the catalyst for the next leg up in GBP. Alternatively, if Bailey takes a dovish stance against the current rise in GBP this could give the current rally some pause
Technical Views
GBPJPY
The rally in GBJPY has seen price breaking out above the 152.78 level and above the prior 2021 highs. Price is now retesting the broken bullish channel from below. For now, the focus is on a continued push higher towards the 156.39 level. However, it is worth noting the bearish divergence in momentum studies which could stifle the move. To the downside, 149.55 is the key level to watch.
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With 10 years of experience as a private trader and professional market analyst under his belt, James has carved out an impressive industry reputation. Able to both dissect and explain the key fundamental developments in the market, he communicates their importance and relevance in a succinct and straight forward manner.