GBP/USD: positive dynamics of the pound remains
Once again, the pound is outperforming other major currencies. As of this writing, GBP / USD is traded near 1.3846 mark after hitting an intraday and 34-month high of 1.3855 at the start of today's European session.
Some economists and investor expectations estimate that UK stocks will have a dividend yield of 4% by the end of 2021, one of the highest in developed markets. The UK managed to avoid Brexit without an agreement, and now they are more confident in the positive outlook for the British economy and the British stock market, which creates the preconditions for further growth in demand for the pound. Many market players investing in the UK economy prefer shares in UK-based companies focused on the home market (construction, retail and consumer durables) amid a faster rate of coronavirus vaccination in the UK than in Europe and other parts of the world.
Also, the positive mood was created by the data on retail sales in the UK, published last Tuesday. According to the BRC (British Retail Consortium) report, in January the growth of retail sales in the country amounted to 7.1% (against the forecast of +6% and the previous value of 4.8%), despite the more negative forecasts of some economists.
Today market participants expect the publication (closer to the beginning of the American trading session) of the estimate of the UK GDP growth rates for January from NIESR. They will also follow the speech of the head of the Bank of England Andrew Bailey. He is likely to give another clarification on the bank's decision on monetary policy made last week.
As you know, last Thursday the Bank of England decided to leave interest rates and the size of the asset acquisition program unchanged at 0.10% and 895 billion pounds, respectively, and presented optimistic economic forecasts. Bank executives were also skeptical about the introduction of negative interest rates.
If Andrew Bailey gives any hints about tightening or easing of the Bank of England's monetary policy in the near future, then volatility during his speech will sharply increase in the quotes of the pound and the London Stock Exchange FTSE index. If he does not touch upon the issues of monetary policy, the reaction to his speech will be weak. Bailey's speech will begin at 5:00 pm (GMT).
In addition, closer to the close of the American trading session (at 19:00 GMT), the speech of the head of the Fed Powell will begin, during which he may clarify plans for monetary policy, which may also cause an increase in volatility in the market.
But first of all, investors will pay attention to the publication (at 13:30 GMT) of the January statistics on consumer inflation in the United States. Its growth is expected to be +0.2% (+1.5% in annual terms) against +0.1% in December (+1.6% in annual terms). The data point to a rise in inflation. Despite the fact that it is below the Fed's target of 2%, this is a positive factor for the dollar.
Weaker inflation at the beginning of the year could temper forecasts of accelerating inflation and provoke a decline in US Treasury yields, which will put pressure on the dollar. The data better than the forecast will provide the dollar with even more support, since high CPI growth will strengthen inflationary expectations and may provoke a stronger market reaction, which may put pressure on the GBP / USD towards its short-term decline. In general, there is a positive trend in GBP / USD, which is facilitated by a number of fundamental factors that we wrote about in our previous reviews, in particular, regarding the dollar. There are more and more opinions among investors that the plan proposed by US President Joe Biden will ultimately lead to an increase in the US current account deficit and a gradual devaluation of the dollar.