The volatility of the British currency increased significantly last week. Despite this, the exchange rate of the Pound/Dollar Forex pair only slightly decreased to the level of 1.4165.
The main support for the British currency still lies in strong fundamental data and expectations of a full opening of the country's economy. The index of business activity in the key services sector of the UK was revised upwards and amounted to 62.9 points for May against the 61.8 forecast. Market participants expect that the country's economy will be fully opened on June 21. British Prime Minister Boris Johnson was less confident in his speech last week, but has yet to announce a change of plans.
Vaccination and the re-opening of the UK economy should leave the pound stable. The spread of a new strain of coronavirus is a top-down risk. In addition, the Bank of England is expected to complete its bond purchases by the end of the year. The rapid introduction of the vaccine in the UK will be key to predicting strong growth at the expense of consumers over the next 12 months. The view of outgoing Bank of England Chief Economist Andy Haldane that an atypical recession should lead to an atypical recovery is supported by many economists. This indicates an early departure from ultra-easy monetary policy compared to what has been observed since the global financial crisis.
Markets are confidently assuming that the Bank of England will reverse an emergency rate cut of 15 basis points by November 2022. However, if the consumer spending data suggests a much faster recovery, and if the UK labour market can withstand the gradual withdrawal of political support through the jobs preservation scheme, then the likelihood of an even earlier policy change will increase. Strong consumer activity affecting the rate cycle should support the pound, which remains stable against the US dollar. A key risk is the rising number of coronavirus cases in India, disrupting the resumption schedule.
The mixed data of the US labor market caused an increase in the volatility of the pound/dollar pair, but did not fundamentally change the location of forces. The slight decline in quotations at the end of the week was definitely not caused by a change in the fundamental trend. Moreover, the British currency has an excellent chance of further growth, as official US employment data turned out to be worse than expected. The exchange rate of the pound/dollar pair has a good chance to rise above the recently established high of 1.4249 in recent years. The next benchmark for the pair will be the highest value of 2018-1.4375.
Pound/Dollar Forex signals and levels
The forecast for the coming week assumes an increase in the Pound/Dollar exchange rate to the price values of 1.4180, 1.4200, 1.4225, 1.4250 and 1.4280.