Pound price forecast 15 March 2021

2021-03-15

Fed to lend Pound a helping hand. Forecast as of 15.03.2021Dmitri Demidenko

While the pandemic has had a considerable impact on the UK economy, the Bank of England and the OECD are optimistic. This is what keeps [GBPUSD][1] from a deep correction. How will the pair react to central bank meetings? Let us discuss the Forex outlook and make up a trading plan.

Weekly pound fundamental forecast

The British pound rattled its buyers’ nerves, falling to a month low against the US dollar amid a rapid recovery of the US economy, a rapid rally in Treasury yields, and the Fed’s unwillingness to stop it. At the same time, as soon as the world stock indexes went up, the [GBPUSD][1] bulls have perked up. Moreover, the UK GDP did not sink as deeply as expected. All these factors help the sterling to stay relevant.

In January, the British economy shrank only by 2.9% due to the healthcare and construction sectors’ success, in contrast with the 4.9% reduction proposed by Bloomberg. The main headwind was created by the non-manufacturing sector and exports, which decreased by 40.7% due to Brexit. At the same time, the successful vaccination campaign allows expecting the explosive growth of GDP during the rest of the year. The OECD raised its forecast for the UK economy for 2021 and 2022 by 0.9% and 0.6% pp. The Bank of England believes that the British economy will be able to recover by early 2022.

OECD forecasts for the world’s leading economies

Source: Financial Times.

At a meeting on March 18, Andrew Bailey and the MPC officials will decide what to do with rising sovereign bond yields, the pound strengthening, and market pricing that suggests the interest rate will increase by 50 bps over the next three years.

I do not think that the 2% and 4% sterling growth against the US dollar and the euro since the beginning of the year is a headache for the Bank of England. The trade-weighted British pound is not growing so fast and is still far from its pre-2016 referendum levels. Moreover, the US high domestic demand allows counting on the recovery of UK exports. According to the OECD, the United Kingdom, Canada, Mexico, and Brazil will be among the main beneficiaries of Joe Biden’s $1.9 trillion fiscal stimulus plan.

US fiscal stimulus impact on global growth

Source: Financial Times.

The US Treasury yields growth does not bother the Fed, but it worries other central banks whose economies are not recovering as quickly as in the US. Nevertheless, the BoE is optimistic about the future and believes that the moment will come when it will not have to be troubled due to the increase in the British debt market rates. In this regard, I do not expect drastic changes in monetary policy and the Bank of England’s dovish stance at the March 18 meeting, which should play into the sterling hands.

Weekly [GBPUSD][1] trading plan

How will dollar pairs react to the outcome of the FOMC meeting? In my opinion, Jerome Powell understands that by remaining indifferent to the rally in Treasury yields, he only whets the traders’ appetite. I expect that the Fed chairman will pay more attention to tightening financial conditions, which will stabilize the US debt market’s situation and halt the greenback rally. In this situation, [GBPUSD][1] longs will become relevant on a breakout of resistance at level 1.4 or if the bears are unable to lower prices below levels 1.382-1.384.

Price chart of GBPUSD in real time mode

The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteForex. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC.

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