During the recovery of the global economy, those currencies whose issuing central banks are the first to normalize monetary policy are becoming popular. In this regard, GBPUSD consolidation looks logical. Let us discuss the Forex outlook and make up a trading plan.
Monthly pound fundamental forecast
At first, any high inflation seems temporary, but the consequences can be dire if you miss the moment when it becomes uncontrollable. According to the Bank of Russia, the Fed will provoke a new global economic crisis if it changes its position on the temporary nature of high values of the PCE index and begins to raise the federal funds rate aggressively. The significance of the Bank of England’s mistake for the world economy is significantly lower, but it can have colossal consequences for the UK.
The BoE was initially wrong about inflation. According to its May forecast, inflation was set to rise to 2.5% by the end of 2021. In August, the Bank of England raised the estimate to 4%, but the trajectory of the actual movement of consumer prices suggests that it will also be underestimated. According to the results of the last month of summer, the British CPI accelerated to 3.2%, surpassing the most aggressive forecast of Bloomberg experts. It seems like the fastest inflation dynamics since March 2012.
Inflation and forecasts of the Bank of England
This fact, together with strong labor market data, where the number of vacancies in the second quarter increased by 35% QoQ to a record 1.03 million, allows the Bank of England to tighten its monetary policy. Most likely, against the background of an improvement in the epidemiological situation, most of the 1.6 million unemployed will find new jobs in 2022.
After the release of strong inflation data, the money market began to expect an increase in the interest rate in May and the second half of next year. These are good news for the sterling.
Dynamics of market expectations for the interest rate
In general, the pound in early autumn has a lot in common with the US dollar. Inflation in both the UK and the US is at high levels as well as the number of unemployed. The same economic slowdown in the third quarter after its rapid growth in the second. Even the meetings of the Fed and the Bank of England will be held one day apart.
Nevertheless, the significance of the greenback for Forex, its status as a safe haven, the fact that the US GDP has already recovered, in contrast to the British one, made it possible to say that the positions of the GBPUSD bears are better than those of their opponents. Curiously, the consensus forecast by 76 Bloomberg experts suggests that the pair will rise to 1.39 by the end of 2021.
EURGBP, GBPCHF and GBPJPY trading plan for a month
Even though I prefer the US dollar, in my opinion, sterling is by no means a weak currency. A possible increase in the interest rate at two BoE meetings in 2022 will determine GBP’s fate for at least the next six months and give reasons to buy it against other G10 currencies. The divergence in the monetary policy of the Bank of England with the ECB allows expecting the continuation of the EURGBP downtrend in the direction of 0.846 and 0.839. The fact that the SNB will not raise rates before the European Central Bank, and the Bank of Japan will remain committed to aggressive monetary stimuli, allows buying GBPCHF and GBPJPY with targets at 1.285 and 1.295, 152.3 and 153.6, respectively.
Price chart of EURGBP in real time mode
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