Pound/Dollar: last week results and forecast for the week of May 24-30, 2021
The British currency rose against the US Dollar to 1.4135. For the third week in a row, the pound recorded growth thanks to a series of data publications that support expectations of a strong recovery in the country's economy.
Last week, the UK took a major step towards easing isolation by lifting a ban on international travel and allowing restaurants to reopen for indoor service. The exchange rate of the pound/dollar pair came close to the highest value since February at 1.4242.
The preliminary reading of the UK business activity index for May reached the highest level on record. In hotels, restaurants and other previously closed areas of customer service, there is a maximum jump in demand. Earlier, separate data showed that UK retail sales rose in April. Sales jumped 9.2% from the previous month, twice the average forecast in a Reuters poll of economists.
Foreign exchange market analysts believe that the UK economic recovery is partly embedded in the current value of the pound, but not fully accounted for, because there is still no clear understanding of how vaccination will spur economic growth in the long run, or what impact it will have on GDP. It is expected that if the current trend continues, the pound will rise against the dollar by the summer to the level of 1.4500.
Data released last week showed that UK inflation more than doubled in April, while the country's unemployment unexpectedly fell between January and March. For currency investors, the key question is whether rising inflation will affect the Bank of England's monetary policy, prompting the central bank to raise rates sooner. The PMI makes it pretty clear that cost pressures are rising, and that firms feel comfortable shifting them to consumers. From now until next year, inflation will gradually decline, which will reduce the immediate pressure on the regulator to consider raising rates.
According to the latest survey conducted by Reuters, the UK economy will grow significantly faster than expected this year, as a rapidly implemented vaccination program allows businesses to resume work and increases confidence. The survey of 60 economists showed that the country's economy will grow by 5.9% this year, and this is higher than the 5% estimate forecast last month. The details suggest that the change in GDP in the second quarter will be 4.1% compared to 3% in the previous forecast. However, the Bank of England is not expected to change interest rates until 2023, as predicted in a previous survey, despite the fact that the inflation forecast exceeds the Central Bank's 2% target.
Analysts at HSBC investment bank also revised up their GDP growth forecasts. The revision is about the projected timing of the economic recovery, not the extent of it. The bank raised its forecast for GDP growth in the second quarter to 4.6% from 2.9% in the previous forecast, but revised down its estimate of the change in the British economy in the third quarter.
Signals for trading GBP/USD currency pair
The forecast for the coming week assumes an increase in the Pound/Dollar exchange rate to the levels of 1.4150, 1.4175, 1.4200, 1.4230 and 1.4260.