FX.co ★ Forecast for GBPUSD and EURUSD: unexpected results of the Bank of England meeting and the growth of the pound

The British pound managed to maintain its strong position before the publication of the Bank of England's decision on interest rates, thanks to an excellent report on the services sector. It also continued to grow immediately after the publication of the results of the meeting. The removal of stop orders from speculative buyers turned out to be more useful than ever, only fueling investors' appetite.

The cherry on the cake

The Bank of England left the interest rate and economic stimulus measures unchanged at the last meeting on Thursday, May 6. However, one nuance did not allow the pound to lose ground against the US dollar. The nine-member Monetary Policy Committee, chaired by Governor Andrew Bailey, voted unanimously to keep the interest rate at 0.10%. The bank also kept its purchases of corporate bonds at 20 billion pounds and government bonds at 875 billion pounds.

The cherry on the table was Andrew Haldane, who voted to continue the existing purchases of UK government bonds, but lowered the target volume of purchases to 825 billion pounds from 875 billion pounds.

The minutes of the meeting said: the committee does not intend to tighten monetary policy, at least until there is clear evidence that significant progress has been made in restoring the labor market and achieving the 2nd inflation target. The UK's GDP is forecast to grow by about 4.25% in the second quarter of 2021, with the full lifting of restrictions expected in early summer this year. Good vaccination rates of the population will also contribute to this. The bank said that although inflation is below the 2% target, it will temporarily exceed this target by the end of 2021, mainly due to changes in energy prices. In the medium term, inflation will remain around 2 percent.

From all this, we can conclude that the UK will not hesitate to change its policy at the first sign of achieving its goals. The overheating of the economy will be more painful than the early curtailment of stimulus and support programs. Demand for the British pound should continue and increase in the near future.

As noted above, the UK service sector grew at its fastest pace since October 2013, thanks to a sharp increase in commercial and consumer spending amid the easing of restrictions related to the COVID-19 pandemic. According to IHS Markit, the Chartered Institute of Procurement PMI & Supply Services rose to 61.0 points in April from 56.3 points in March, which was higher than economists' forecasts, which had expected a jump to 60.1 points. The easing of restrictions due to COVID-19 in the UK was a key factor contributing to increased activity. As a result, new orders increased, while sales to foreign customers remained relatively low. The number of new jobs in the sector has also increased. The report also noted that service sector companies overwhelmingly expect business activity to pick up over the next 12 months. The positive recovery trend is likely to accelerate in the coming months. Problems will remain with supply chains and disrupt work deadlines.

The composite index, which includes the manufacturing sector, rose to 60.7 points in April from 56.4 points in March.

As for the technical picture of the GBPUSD pair, the bulls are now showing maximum activity in the resistance area of 1.3925. A breakout and consolidation above this range will lead to a good entry point in the continuation of the bull market, which we observed last month. Traders needed new benchmarks, and they got them. Going beyond 1.3925 will lead to a larger increase in the pound in the highs of 1.3970 and 1.4020. If the bulls fail to cope with the resistance of 1.3925 and the trading day closes below this level, sellers of risky assets will have a chance to take the market into their own hands. To do this, they need to break below the support of 1.3870, which will lead to a larger movement of the pound down to the area of 1.3840 and 1.3800, from which it managed to recover earlier this week.

EUR

Today, the European currency managed to reach beyond a fairly important resistance level thanks to good fundamental statistics on the euro area.

From a technical point of view, the breakout of the large resistance of 1.2025 led to the expected instant recovery of the euro in the area of new highs. Now the immediate goal of the bulls will be a breakout and consolidation above the resistance of 1.2060, from which buyers of risky assets will be able to reach the new local levels of 1.2100 and 1.2140 without any problems. The bulls must close the day above the support of 1.2025, as this level is decisive. Its breakout is sure to push the euro back to the weekly low of 1.1990.

According to EU data from Eurostat, retail sales in the euro area grew for the second month in a row in March this year. However, the growth rate slowed compared to February due to the introduction of new quarantine restrictions. Thus, retail sales increased by 2.7% in March, after an increase of 4.2% in February this year. The data was much better than economists' forecasts, who had expected growth of only 1.5%.

The report on the growth of production orders in Germany also triggered the growth of the euro. According to Destatis, German manufacturing order growth accelerated more than expected in March, driven by external and domestic demand. Manufacturing orders rose 3% month-on-month in March, after rising 1.4% in February. Orders were expected to rise 1.7 percent. Excluding large orders, new orders in manufacturing jumped 1.6%. Domestic orders rose 4.9%, while external orders rose 1.6%.