The macroeconomic statistics both in the UK and in the United States did not match the forecasts in any way, and oddly enough, this strengthened the pound. Which should have happened if all the expectations were confirmed. This happened only due to a single indicator. But about everything in order.
A kind of arbiter in this situation will be Nonfarm, who will either support the dollar or drown it, allowing the GBP/USD bulls to seize the initiative. Another major fundamental factor, which is equivalent to Nonfarm, is political in nature. We are talking about a new package of assistance to the US economy, which is already being discussed in Congress for the second week. The combination of these fundamental factors (against the background of medical reports on the spread of COVID-19 in the US) will determine the fate of the GBP/USD pair. At the same time, British events will play the role of second fiddle - unless they touch on the topic of Brexit.
First of all, let's understand – why was the British currency so impressed with the Bank of England, which strengthened throughout the market at the end of the August meeting. By and large, nothing supernatural happened: the central bank simply did not implement the most pessimistic scenario, and, in addition, voiced a cautiously optimistic position on the future prospects. The market clearly expected more dovish rhetoric, so the pound shot up - first after the announcement of the results of the meeting, and then after the press conference of BoE Governor Andrew Bailey.
On the eve of this meeting, there was no consensus among experts on how the central bank would react to recent events. On one side of the scale is the growth of key macroeconomic indicators (although the most recent releases were outdated - labor market indicators were for May, and inflation indicators were for June; but in both cases, positive dynamics were recorded). On the other side of the scale - the increase in the number of cases of coronavirus in the UK, the tightening of quarantine in several large regions of the country and the prolongation of the current restrictive measures. Some analysts assumed that against the background of such trends, the central bank would be pessimistic about the prospects for the recovery of the British economy, and Andrew Bailey would again talk about the likelihood of a negative rate. Also, many assumed that at least two members of the Committee would vote for a rate cut.
But none of the points of the pessimistic scenario were realized. On the contrary, the BoE showed some optimism. First, the central bank published updated economic forecasts, in which it stated that the consequences of the "coronavirus strike" will not be as large as initially thought. Secondly, none of the Committee members voted to cut the interest rate. Thirdly, Bailey neutralized concerns about the introduction of a negative rate: he assured journalists that this issue was not on the agenda.
Such news flow encouraged buyers of GBP/USD, after which the pair approached the boundaries of the 32nd figure. But they could not overcome this line. The bears seized the initiative again during the US session, taking advantage of the dollar's correctional growth. Looking ahead, it should be emphasized that the greenback is still a vulnerable currency: the coronavirus factor and the failed ADP report continue to exert background pressure. But today the US received support from Congress. The fact is that both the Speaker of the US House of Representatives Nancy Pelosi (who represents the Democrats) and Senate Majority Leader Mitch McConnell expressed absolute confidence that the parties will come to an agreement on a new financial aid package. According to them, the negotiators only need to agree on "only a few points", but overall there is no doubt that the legislators will be able to agree on a program to help the economy.
In addition, the dollar was also slightly supported by the initial jobless claims. This weekly report was released today in the green zone - for the first time in the last three weeks. Let me remind you that this indicator began to rise again after a 14-week stable decline, reflecting the unhealthy trends. After the disappointing ADP report (the indicator came out at the level of 167,000 instead of an increase of one and a half million), today's release became a kind of bonus that slightly calmed the dollar bulls.
But the overall situation is uncertain. The dollar will slump again if tomorrow's data on the US labor market turns out to be much worse than expected. As you can see, GBP/USD traders have already played the August meeting of the BoE – now the pair's prospects depend on the behavior of the US currency, which, in turn, is waiting for the Nonfarm data. Therefore, traders have two options for the development of events. Either opening longs from the current positions and aiming for 1.3200 (a very risky option, given tomorrow's release), or a wait-and-see position before the Nonfarm report is released. And here it is worth recalling that although ADP reports have a high correlation with official data, they do not always signal real trends in the US labor market.
