GBP/USD seems to be on a downward trend ahead of the monthly low (1.3731) because Bank of England Governor Andrew Bailey claims that the “economy has bouncing back quickly” and new data prints from the UK are likely, to shift the British Pound while the central bank improves its economic outlook for this region.
Fundamental Forecast for British Pound
GBP/ USD are little changed since the beginning of the month. The BoE Governor Bailey believes the UK’s output gap will be closed by the end-of-this year. While speaking at the Mansion House, the central bank head said that it was important to not overreact to temporary strong growth and inflation.
These comments suggest that the BoE is not in a hurry to change gears in the UK’s “rapid but uneven recovery.” However, the updated Consumer Price Index (CPI), may make it more difficult for the Monetary Policy Committee to develop an exit strategy. The headline reading is expected to rise to 2.2% in May from 2.1% in April. This would be the highest reading since November 2018.
The Employment forecast for April is up 90K, a 113K increase in the previous month. A series of positive data prints could fuel a bigger rebound in GBP/USD, as it encourages BoE to adjust its forward guidance for monetary policies. A series of disappointing data prints will likely drag on the British Pound. This allows the BoE maintain its current course for monetary policies. It remains to be seen, however, if Governor Bailey and Co. will follow the same path at the next interest-rate decision on August 5. The central bank is scheduled to update the quarterly Monetary Policy Report.
With that being said, new data prints from the UK will likely sway GBP/USD as a 8:1 split within the MPC continues. A further improvement in labor market and the CPI may cause a wider rift within BoE as the central banking adopts a better outlook for the region.
