GBP/USD: Pound decline accelerates

GBP/USD: Pound decline accelerates

27 April 2018, 13:27

As reported today by the National Bureau of Statistics of Great Britain, the gross domestic product in the 1st quarter grew by 0.1% compared to the previous quarter, or by 1.2% year-on-year (the forecast was + 0.3% and +1.4 %, respectively).

Thus, GDP growth has slowed significantly; the UK economy in the first quarter of 2018 grew at a slower pace in more than five years.

Also the UK business activity index, the leading branch of the British economy was worse than expected (+0.4% vs. 0.6%, +0.6% in February). This economy sector is the bulk of the country's GDP.

The low growth rates of the British economy reduce the likelihood of an increase in the key interest rate at the May meeting of the Bank of England.

In November, for the first time in the last 10 years, the central bank raised its key interest rate to 0.5% from a record low of 0.25%, offsetting the decline made after the exit vote.

The Bank of England also signaled that in the coming years it plans to raise rates three or more times in order to contain the growth of inflation.

The British pound fell to a two-week low against the backdrop of published macro statistics, as investors came to the conclusion that the rate hike could be delayed.

Uncertainty about future ties between the UK and the EU persists, and economic data indicate a weak start this year.

Today at 14:00 (GMT) the performance of Mark Carney will begin. His comments, which he gave last week, have diminished the expectations of investors for raising rates, which many expected already next month. He noted that economic data indicate a weak beginning of the year and markets should not expect a rate hike in May.

Investors will be interesting to hear his opinion today on the received weak data on GDP growth, as well as on the upcoming meeting of the Bank of England in May 10, at which the issue of monetary policy will be decided.

Also, investors will follow the publication at 12:30 (GMT) of the annual US GDP for the first quarter, as well as the price indices and expenditures for personal consumption of Americans for the first quarter.

As the US Department of Labor reported yesterday, the number of Americans who applied for unemployment benefits for the first time last week declined to the lowest level since 1969. This was yet another sign of improvement in the labor market after several years of steady employment growth. The number of initial applications for unemployment benefits in the week of April 15-21 fell by 24,000 and amounted to 209,000. The labor market in the US remains strong, and this is an important positive factor for GDP. Probably, US GDP will grow at 3-3.5% annually, as expected by economists. This is a strong signal for the dollar in the direction of its further strengthening, not only against the pound, but throughout the currency market.

Moreover, the FRS at the moment remains the world's single largest central bank, implementing a gradual tightening of monetary policy. And this is the most important fundamental factor in favor of the growth of the dollar at the moment.

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Support levels: 1.3740, 1.3620, 1.3210

Resistance levels: 1.3970, 1.4045, 1.4100, 1.4190, 1.4300, 1.4340, 1.4400, 1.4500, 1.4575, 1.4760


Trading Scenarios

Buy Stop 1.4010. Stop-Loss 1.3880. Take-Profit 1.4045, 1.4100, 1.4190, 1.4300, 1.4340, 1.4400, 1.4500, 1.4575, 1.4760

Sell in market. Stop-Loss 1.4010. Take-Profit 1.3740, 1.3620, 1.3500, 1.3400, 1.3300

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