Lately, the GBP/USD pair has been demonstrating heightened volatility: the pair has been fluctuating within a 150-point range of 1.2190-1.2340, bouncing back and forth between the limits of this range. At the same time, the pound is virtually stagnating in spite of rather strong price fluctuations. To develop an uptrend, the bulls need to go up to the limits of the 24th figure (overcoming the resistance level of 1.2380, which corresponds to the upper line of Bollinger Bands), whereas for the downward reversal, bears need to stay below the support level of 1.2130 (lower limit of the Kumo cloud on the daily chart). Despite many attempts to break out to the upside/downside, traders failed to implement either scenario. The pair continues to trade in turbulence, but actually showing sideways movement. Traders need a strong information impulse so that they can leave the aforementioned price range.
Maneuvers of the Bank of England
Last week, the BoE raised the rate again - for the eleventh time in a row. Unlike previous hikes, the March decision was expected, but "not guaranteed". Back at the beginning of March, the prevailing opinion among currency strategists of big banks was that the British central bank would not raise the rate. In fact, the relevant hints were voiced by BoE Governor Andrew Bailey himself, however, leaving room for maneuver in case of increased inflationary pressure. The maneuver was actually needed after the latest UK inflation report for February was released. Over the previous three months, the overall consumer price index had been falling consistently, reflecting a slowdown in inflation. But in February it unexpectedly rose to 10.4% y/y, with a forecasted decline to 9.9%. The core CPI did the same, jumping to 6.2%, after falling to 5.8% in January. The retail price index and the producer purchasing price index were also in the green zone, confirming general trends.
This release predetermined the results of the BoE's March meeting. The central bank, in fact, had no choice but to increase the interest rate by another 25 points. Which, in fact, it did. But at the same time, the central bank provided temporary support to the British currency, since Bailey's rhetoric and the main theses of the accompanying statement were, so to speak, "final" in nature. The BoE has made it clear that it is ready to further tighten monetary policy, but only as a last resort – if inflation continues to rise further. The basic scenario is still keeping the rate unchanged. Moreover, Bailey expressed confidence that the inflationary surge is temporary, followed by a significant decline.
By the way, a similar position was recently voiced by British Finance Minister Jeremy Hunt. Presenting the government's new financial plan, he predicted a decrease in inflation to 2.9% by the end of the year.
In other words, the BoE maintained a hawkish course, but still made it clear that the March rate hike could be the last in the current cycle. In such conditions, an additional informational push is needed, which will tip the scales in the direction of the pound or against it.
Meeting of the Treasury Special Committee
In this context, the meeting of the Treasury special committee, which will be held on Tuesday, March 28, is of particular importance. Bailey and his deputy, David Ramsden, will speak at this meeting. They will announce reports and answer questions from officials and MPs. This is an important event for GBP/USD traders, since Bailey can specify the intentions of the central bank regarding its further actions (or inaction).
It should be recalled here that the next meeting of the BoE will take place on May 11: there will be no decision on monetary policy in April. Therefore, on the one hand, one should not expect any specifics from Bailey. Most likely, he will repeat the main messages announced at his last press conference - that the central bank is ready to pause, but the decision will largely depend on incoming data and developments. On the other hand, traders will assess the tone of Bailey's rhetoric on Tuesday. If he talks about the next increase in line with an extreme measure (an undesirable measure), the pound may weaken throughout the market, including in pairs with the dollar. But if he places the accents of his rhetoric in a different way (designating a 25-point increase as a basic scenario), the pound can get substantial support.
From a technical point of view, on the 4-hour chart, the pair is testing the middle line of the Bollinger Bands indicator, which coincides with the Kijun-sen line and corresponds to the 1.2260 mark. If the pair climbs above this, the Ichimoku indicator will form a bullish "Parade of Lines" signal, indicating bullish sentiment. The target of the upward movement in the medium term is 1.2340. This is the ceiling of the price range, within which the pair has been trading during the last week. At the same time, this target corresponds to the upper line of the Bollinger Bands indicator on the four-hour chart.