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The unexpected decision of the Bank of England to raise the refinancing rate triggered a prolonged growth of the pound, which has not stopped until now. Although the rebound has been asking for a long time. But instead, the pound stubbornly continues to grow. And yesterday it happened against the background of Jerome Powell’s speech in the Senate. During which the head of the Federal Reserve once again repeated that in order to combat record inflation for forty years, the US central bank plans to raise the refinancing rate at least twice. If necessary, we will talk about three hikes. Formally, from the point of view of the markets, this is a rather harsh statement, which should have just contributed to the strengthening of the dollar. But the trick is that the possibility of a fourfold increase in the refinancing rate has been actively discussed over the past few days. Moreover, it was mentioned at the level of speculation and assumptions. Official representatives of the US central bank have never even hinted at such a development. In other words, this is a banal speculation. The market has begun to believe in this, and expect Powell to use somewhat tougher rhetoric. And in this light, his statements began to look less intimidating. And this is already a reason for the weakening of the dollar.
Data on inflation in the United States will be published today, which clearly will not be ignored. Moreover, the growth rate of consumer prices should accelerate from 6.8% to 7.1%, which should be the reason for the dollar’s growth. The fact is that Powell’s speech, in general, removed all questions about the number of refinancing rate increases, the question remains open about the timing of the start of this process. A further increase in inflation may convince many that such a thing can happen already during the January meeting of the Fed. And this is already enough for a noticeable strengthening of the dollar.
Inflation (United States):
On the way of the upward cycle, the GBPUSD currency pair has overcome the resistance level of 1.3600. This move resulted in a further increase in the volume of long positions, despite the growing overbought level of the pound sterling.
On the daily chart, the price is recovering relative to the downward movement in the period from June to December of the previous year. At the moment, the pound rate has recovered by 45%, which casts doubt on the downtrend scenario.
Expectations and prospects:
It can be assumed that keeping the price above 1.3650 will open the way in the direction of 1.3700-1.3800. Otherwise, there may be a short-term stagnation in the area of the 1.3600 level.
Comprehensive indicator analysis gives a buy signal based on short-term and intraday periods due to inertial upward movement.
*The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade.
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