GBP/USD outlook for May: Inverted H&S points to more gains

Written by: Crispus Nyaga
May 4, 2021
  • The GBP/USD pair is little changed ahead of the BOE decision.
  • Data published showed that the manufacturing sector is doing better than expected.
  • The mortgage market is also doing well, helping support the economy.
  • Economists expect the upcoming Scottish election to have no meaningful impact.

The GBP/USD price is wavering ahead of the Scottish election that is scheduled for Thursday this week. It is also reacting to the relatively positive economic data from the UK and the upcoming Bank of England (BOE) decision.

GBP/USD
GBP/USD price action

UK economic recovery ongoing

The UK economy is recovering at a faster pace than expected. This is evidenced by the relatively strong employment, inflation, and retail sales data. The current pace of vaccinations has also helped to support the economy. 

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The GBP/USD is today reacting to the positive UK manufacturing PMI data. According to Markit, the manufacturing PMI data rose from 58.9 in March to 60.9. This increase was even better than the flash PMI of 60.7 that was published a few weeks ago. 

Markit cited the strong recovery to large internal and external demand for manufactured goods from the UK. Also, many manufacturers sounded optimistic about the industry, which saw them increase hiring activity. In a note, Rob Dobson of Markit said:

“The headline PMI rose to a near 27-year high, as output and new orders expanded at increased rates. The outlook for the sector is also increasingly positive, with two-thirds of manufacturers expecting output to be higher in one year’s time.”

The GBP/USD also rose after the relatively positive mortgage data. In the past few months, the mortgage industry has done well, as evidenced by the robust earnings by major lenders like NatWest and Lloyds Bank. According to the BOE, mortgage approvals declined to 82.7k in March while the total amount offered surged to more than 11.3 billion pounds. The latter was bigger than the median estimate of more than 5.8 billion pounds. 

These numbers came a day ahead of the latest  BOE interest rate decision. Economists at most forex and CFD brokers expect the bank will leave interest rates and quantitative easing policy unchanged. On Thursday, there will also be the Scottish election. Analysts expect the outcome to have no meaningful impact on sterling.

GBP/USD forecast

GBP/USD
GBP/USD technical chart

The GBP/USD has been moving sideways in the past few weeks. On the daily chart, the pair is slightly above the 25-day and 50-day weighted moving averages (WMA). A closer look shows that it has formed an inverted head and shoulders pattern. In our free forex trading course, you will find that this is a bullish pattern. It also remains above the descending green channel. Therefore, in May, there is a possibility that the pair will keep rising as bulls target the year-to-date high of 1.4240. To do that, they will need to move above the resistance at 1.400.