BoE treads with caution

The British pound has had a relatively quiet week, and the pattern has continued on Thursday. GBP/USD is up slightly as the pair trades just above the 1.39 level.

BoE optimistic but cautious

There were no surprises for the BoE’s policy meeting earlier today, with the pound showing some choppiness ahead of the decision. As the markets had expected, the decision to maintain rates at 0.10% was unanimous, while the vote to keep QE at GBP 830 billion was 7-1.

The central bank raised its inflation forecasts, which was expected, given that the past two CPI readings have been higher than expected. The upward revision to the inflation projection was dramatic, with the BoE now projecting inflation will hit 4% in Q4 of 2021 and Q1 of 2022, up sharply from 1.5% in May.

BoE Governor Andew Bailey said that he expects UK GDP to recover to its pre-pandemic levels in the fourth quarter, with growth then expected to slow due to the tightening in fiscal policy. To sum up, the economy is headed in the right direction but caution is king.

The week will end with key US jobs data, highlighted by nonfarm payrolls, with a consensus of 870 thousand. There is some concern after the ADP Employment Report came in at 330 thousand, compared to the forecast of 695 thousand. The weak release sent the US dollar on its backside before it managed to recover after ISM Services PMI outperformed. If the NFP reading also falls flat, the US dollar could hit the retreat button before the weekend.

The dollar could also react if the unemployment rate and wage growth do not fall within expectations. The unemployment rate is expected to drop to 5.5%, down from 5.7%, while wage growth is forecast to remain steady at 0.3% MoM.

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GBP/USD Technical Analysis

• GBP/USD is testing resistance at 1.3832. Above, there is resistance at 1.3917
• On the downside, 1.3617 is the first line of support. This is followed by support at 1.3487

For a look at all of today’s economic events, check out our economic calendar. www.marketpulse.com/economic-events/

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