GBP Well Placed For Further Gains on Brexit and Bank of England
GBPUSD talking points:
- The UK and the EU have reached agreement on a Brexit transition deal.
- The Bank of England will likely leave interest rates unchanged this week but could signal a rise as early as May.
- UK wage inflation data could also be constructive for GBP.
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British Pound uptrend likely to extend higher
GBP has plenty going for it this week and is well placed to make further gains. The first reason is Brexit, with the EU and the UK agreeing a Brexit transition deal. A two-day EU summit on Thursday and Friday looks set to ratify it.
GBP/USD has been in an uptrend since the start of March and breached the psychologically important 1.40 level Monday but further gains still seem likely.
GBPUSD Price Chart, Daily Timeframe (November 5, 2017 – March 19, 2018)
Hawkish Bank of England?
Later this week the Bank of England’s monetary policy committee meets and its announcement on Thursday is expected to reveal no change in its 0.5% bank rate, its £435 billion asset-purchase target or its £10 billion corporate bond target. However, it could pave the way for an increase in bank rate to 0.75% in May.
Higher average earnings?
Prior to that, on Wednesday, figures for average weekly earnings are forecast to reveal a rise to 2.6% from 2.5% three-months year/year in January, adding to the pressure on the central bank to tighten monetary policy.
GBP set to benefit
In due course, this could help lift GBPUSD towards the 1.4340 high touched on January 25, with good support at 1.3875 from the trendline joining the higher lows in place since the start of this month.
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--- Written by Martin Essex, Analyst and Editor
DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.