GBP/USD on the cusp of a major breakout after the BOE decision

By: Crispus Nyaga
Crispus Nyaga
Crispus is an active trader, where he is followed and copied at Capital.com. He lives in Nairobi with his wife, son,… read more.
on May 6, 2021
  • The GBP/USD pair has formed a symmetrical triangle pattern.
  • It rose slightly after the BOE interest rate decision.
  • The bank left interest rates and quantitative easing unchanged.

The GBP/USD rose after the Bank of England (BOE) delivered its May interest rate decision. The pair initially dropped to 1.3858 and then bounced back to 1.3917. 

GBP/USD
GBP/USD price chart

Bank of England decision

The BOE delivered a relatively modest interest rate decision. As expected, the central bank decided to leave interest rates unchanged at 0.10%. The vote was unanimous. The committee members also voted to maintain the pace of the 895 billion pound quantitative easing program. One member voted against the measure. 

Are you looking for fast-news, hot-tips and market analysis? Sign-up for the Invezz newsletter, today.

Further, as expected, the bank upgraded the outlook of the UK economy. It now expects that the economy declined by 1.5% in the first quarter. Further, it expects the GDP to recover sharply in the second quarter, helped by the country’s reopening and the government support policies. On inflation, it expects the headline CPI will rise to above 2% in the fourth quarter of the year. The bank said:

“The Committee does not intend to tighten monetary policy at least until there is clear evidence that significant progress is being made in eliminating spare capacity and achieving the 2% inflation target sustainably.”

UK economy doing well

Earlier today, the GBP/USD pair reacted to the relatively strong services PMI data. According to Markit, the services PMI increased from 56.3 in March to 61.0 in April. This increase was better than the expected increase of 60.1. 

Earlier this week, data revealed that the manufacturing PMI also increased in April. As such, the composite PMI rose from 56.4 to 60.7. Therefore, there is an elevated possibility that the BOE will start tightening soon.

Like all major currencies, the next major catalyst for the GBP/USD price will be the US non-farm payrolls data (NFP) that will come out on Friday. Based by the robust ADP jobs data, there is a possibility that the US economy added more than 800k jobs in April. A strong jobs report will likely be bearish for the GBP/USD pair.

GBP/USD forecast

GBP/USD
GBP/USD technical chart

The chart shows that the GBP/USD rose after the BOE decision. The pair has also formed a symmetrical triangle pattern. In technical analysis, this is usually a sign that a breakout in either direction is about to happen. Therefore, since the pair has not broken out after the BOE decision, there is a possibility that it will do so ahead or after the NFP data.

Invest in crypto, stocks, ETFs & more in minutes with our preferred broker, eToro
10/10
67% of retail CFD accounts lose money