The GBPUSD tilted higher on Wednesday evening after a relatively upbeat statement by Andrew Bailey in parliament. The pair rose from this week’s low of 1.3725 to 1.3775. Still, the pair remains in the red for the week.
UK economy rebounding
The UK economy is still upbeat, although the pace of recovery will likely slow in the near term, according to the Bank of England (BOE) governor. He said this when addressing a parliamentary committee on the state of the UK economy and what the bank expects to do.
One of his key comments was that the bank intends to hike interest rates in the next few years so long as the economic rebound continues.
Bailey’s comment was notable because the bank did not hold a meeting in July, and the next decision will take place in less than two weeks time.
In general, recent economic numbers have been relatively positive about the UK economy. For example, on Tuesday, data by Halifax, the company owned by Lloyds, showed that the country’s home price index (HPI) rose by 7.1% in August. This means that the average home price in the UK has jumped by more than 20,000 pounds since the pandemic started.
The Halifax data confirmed what the Nationwide Society said in its most recent report. The strength of the housing market has been caused by historically low interest rates, low unemployment rates, and higher savings as more people stay at home. These savings saw more people afford deposits for their homes. Also, the shortage of workers in the construction sector and tight supplies have helped push prices higher.
Meanwhile, recent data showed that the UK consumer price index (CPI) and PPI remain steady. And, the Bank of England expects that inflation will double to about 4% because of the ongoing shortage and higher commodity prices. Therefore, the GBPUSD darted higher because investors expect that the BOE will follow the Reserve Bank of Australia’s footsteps and start tapering.
US labor market
The GBPUSD pair also rose after some encouraging labor-related numbers from the United States. The data revealed that the number of vacancies rose from 10.2 million in July to more than 10.98 million in August. This happened even as American employers added the lowest number of workers since February in August.
Numbers by the BLS showed that the economy added just 235k jobs in August after adding more than 1.1 million people in the previous month.
Therefore, there is a likelihood that the economy will add more jobs in September, considering that the federal government has phased out the enhanced jobless claims benefits. This decision removed support from more than 7 million recipients, who could start looking for work.
Meanwhile, the GBPUSD also stabilized after the latest Federal Reserve Beige Book. In it, most Federal Reserve officials sounded optimistic about the economy but warned about complacency as the Delta variant spreads. Some analysts now expect that the Fed will start tapering later this year or early 2022.
GBPUSD technical analysis
The two-hour chart shows that the GBPUSD pair formed a bullish engulfing pattern after the relatively optimistic statement by Andrew Bailey. The pair rose to 1.3780, which was higher than this week’s low of 1.3725. It is slightly below the ascending trendline and is still below the 25-day moving average. The Relative Strength Index (RSI) has also moved from the oversold level.
Therefore, because of the bullish engulfing pattern, the pair will likely keep rising ahead of the latest UK GDP numbers scheduled for Friday this week. If this happens, the next key level to watch will be at 1.3950.