Pound: patience is over. Forecast as of 25.11.2021

The strengthening of the US dollar and the negative news on the sterling contributed to the fall of the GBPUSD pair. Nevertheless, the latest UK macroeconomic data are encouraging, but BoE officials still act cautiously. The situation may change in December. Let us discuss the market outlook and make up a trading plan.

Weekly pound fundamental forecast

What could cause inaction? Is it due to lack of data, COVID-19, bad weather, or upcoming Christmas? As the Bank of England’s last meeting on December 16 approaches, markets are less confident that the regulator will raise the interest rate. Since gaining independence, it has not hiked rates in December, and over the past 45 years the BoE has decided to take such a step only once. Christmas is coming soon, there is not enough data, so shouldn’t we wait until February? Alas, the GBPUSD bulls cannot wait. Patience is over.

Bank of England interest rate hike

 

Source: Bloomberg.

The historical reference is not unfounded. Sterling lost 2.5% of its value against the US dollar in November, proving that the last month of autumn is a very unpleasant period for the GBP. Since 1975, GBPUSD has closed November in the red 29 times out of 46. This time, the bulls’ pace was spoiled by the belief in the acceleration of the Fed’s monetary policy normalization, the fourth wave of COVID-19, the energy crisis in Europe, the return of the Brexit topic and the Bank of England’s search for reasons to refuse to hike the interest rate in December.

The perspectives of the sterling are not as hopeless as they might seem. According to Bloomberg, the UK government does not intend to suspend part of the Brexit deal while negotiations with the EU on Northern Ireland are constructive. Most likely, the severance of relations with the European Union is not inevitable. This is good news for both the pound and the euro.

Even the MPC dove, Jonathan Haskel, talks about his concerns about the secondary effects of inflation and that rates will need to rise if the labor market remains tense. What will other officials say? Most likely, Haskel will support the idea of ​​tightening monetary policy. If not in December, then in February.

The UK PMI data indicate that the pandemic and energy crisis are not causing a sharp drop in business activity. The UK PMI was 57.7 in November, exceeding the forecasts of Bloomberg experts. At the same time, about 63% of respondents reported increased costs, which is a sure sign of the further acceleration of inflation.

Dynamics of the UK PMI

Source: Bloomberg.

Following strong jobs, consumer prices and retail sales data, and amid deepening supply and service problems in the UK, as shown by Bloomberg research, there may be talk in favor of interest rate hike in December. Although this is contrary to the seasonal factor.

Weekly GBPUSD trading plan

In my opinion, expectations of tightening the BoE monetary policy will allow the pound to improve the situation. A breakout of the GBPUSD pair above the resistance at 1.335 – 1.3355 can be used to form short-term long trades in the direction of levels 1.342 and 1.35. At the same time, the traders must understand that they are acting against the trend. Therefore they should use stop orders near 1.33 – 1.331. Their working out does not exclude a chance to enter trades at the same levels.

  

Price chart of GBPUSD in real time mode

The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteFinance. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC.

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