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06.05.2021 01:52 PM
Pound on a wave of optimism: Bank of England is expected to deliver positive news

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Most market participants are positive about the further dynamics of the British currency. According to experts and traders, the British regulator will maintain the current monetary policy, which will allow the GBP to stay afloat.

On Thursday, May 6, a meeting of the Bank of England on monetary policy (MP) is scheduled. The decision made by the regulator will be the second most important after the publication of American nonfarm payrolls. According to economists, the leading British bank will maintain the current monetary policy parameters. It is possible that the regulator will improve the previous economic forecast. At the same time, there is a high probability of a partial reduction in the program of quantitative easing (QE), but the chance of improving economic forecasts is much higher.

On the morning of Thursday, May 6, the pound remained stable against the US and European currencies. Ahead of the BoE meeting, sterling was trading near 1.3907, up from Wednesday's close of 1.3905. Currently, the GBP/USD pair is cruising near 1.3909, trying to reach new heights.

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According to experts, if the Bank of England extends the QE program and raises forecasts for the recovery of the national economy, the GBP/USD pair has every chance to break above 1.4000 and conquer the next peaks. Such a development is possible if risk sentiment improves, experts believe. On Thursday, May 6, the GBP/USD bulls started to attack, but they faced a strong resistance level of 1.3914. Experts assume that bullish sentiments will strengthen in case of breakdown of this resistance level.

Most market participants believe that the Bank of England has no reason to be pessimistic. Positive factors are added by factors such as mass vaccination against COVID-19 and active recovery of the national economy. At the moment, the UK is among the leaders in the rate of immunization of the population: more than 50% of Britons have received at least one dose of the COVID-19 vaccine, the second stage of vaccination is on the way. At the same time, the economy of the United Kingdom is ready for the full lifting of restrictions, scheduled for June 21, 2021. According to analysts, the elimination of quarantine restrictions will be a powerful driver of the growth of the British economy.

Many experts believe that the Bank of England will not only improve economic forecasts, but also lay the foundation for reducing the volume of the QE program. According to preliminary forecasts, its reduction is possible by mid-summer. Analysts believe that this will help to resume the rally of the pound. Note that over the past six months, sterling has been trading in an upward trend. The current GBP rally reflects the preparation of market participants for a possible hawkish policy of the Bank of England.

Combined with a solid recovery in the US economy and a robust economic recovery in the euro area, the outlook for the UK economy is increasingly improving. Experts believe that the Central Bank of England can wind down the QE program before the Federal Reserve and the ECB, as well as raise interest rates faster. However, if during the meeting the regulator revises the previous forecasts and expresses concerns about the national economy, the GBP/USD pair may sink. In the case of opposite actions of the Central Bank of England and a positive decision on the results of the meeting, the pair will be able to strengthen.

Larisa Kolesnikova,
Analytical expert of InstaForex
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