GBP/USD: BOE’s Super Thursday And Nonfarm Payrolls Promise Explosive Action

 

  • GBP/USD advanced in response to the Fed’s dovish decision, but gains were limited.
  • The first week of May features the Bank of England rate decision and Nonfarm Payrolls.
  • Late April’s daily chart is showing bears are gaining some ground. 
  • The FX Poll is pointing to further range trading before an upside move later on.

No tapering for now – the Fed’s dovish message has weighed on the dollar, but British issues have limited sterling’s ability to rise. Will bears or bulls take the lead? New forecasts from the BOE and another potential blockbuster US jobs report stand out as a new month begins.

This week in GBP/USD: Goldilocks Fed, but not for sterling

Fed fires dollars on cylinders: The world’s most powerful central bank acknowledges America’s fast recovery but continues seeing rising inflation as only “transitory.” More importantly, the bank is set to continue buying bonds at its elevated pace of $120 billion/month for the foreseeable future – a move that keeps stocks happy and the dollar down.

Jerome Powell, Chair of the Federal Reserve, insisted that inflation results from known base effects and bottlenecks,are also temporary in nature. He also repeated the mantra that the Fed would only act after seeing “substantial further progress.” At this time, the economy “has a long way to go,” according to the Fed Chair.

US Gross Domestic Product figures cast some doubts on that notion. At the same time, output grew by 6.4% annualized, as expected, the surge in consumption, rise in investment and drop in inventories all point to an even faster expansion down the line.

US GDP Quick Analysis: Strong growth now, stronger even later, three reasons for the dollar to rise

One of the main reasons for robust US growth comes from fiscal policy – President Joe Biden’s COVID-19 relief plan worth $1.9 trillion. While his $2.25 trillion infrastructure program is still making its way through Congress, the Commander-in-Chief presented another package worth $1.8 trillion.

Contrary to the first boost and similar to the second one, the administration plans tax hikes. So far, markets have shrugged off such business-unfriendly news. The news is partially priced in, and investors probably doubt that lawmakers in Washington would realize Biden’s full ambitions.

Coronavirus cases have extended their downtrend on both sides of the Atlantic. The UK reached over 50% of its population with at least one jab, a feat that allows further reopening – including an experimental event at a disco. Infections in the US have also turned down after a moderate wave early in April.

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