GBP/USD pulls back from a three-year high ahead of Bailey speech

The GBP/USD pair retreated during the European session after surging to the highest level in three years overnight. It is trading at 1.4182, which is slightly below the intraday high of 1.4247.

Andrew Bailey next

The GBP/USD retreated even after a stream of positive data from the UK. Earlier on, data by Nationwide showed that the house price index (HPI) rose by 1.8% in May. This figure was better than the median estimate of 0.8%. On a year-on-year basis, the HPI rose from 7.1% in April to 10.9% in May.

The UK housing sector has done well because of low-interest rates and the exemption of stamp duty by the government. This has benefited many homebuilders like Taylor Wimpey and Persimmon.

The GBP/USD also reacted to the relatively strong – but disappointing – UK manufacturing PMI data. According to Markit, the PMI declined from 66.1 in April to 65.6 in May. This was below the expected 62.8. Still, the PMI is still above the expansion zone of 50 and is a sign that factory activity is doing well.

The biggest catalyst for the GBP/USD is a speech by Andrew Bailey, the Bank of England (BOE). While the speech will not be about monetary policy, traders will want to know more his thinking on interest rates. This will be a notable speech since it comes a week after Gertjan Vlieghe, a BOE member, noted that the bank may hike rates in 2022. The BOE will hold its next meeting on June 24.

The pair is also reacting to the upcoming reopening later this month. This reopening will likely lead to more business activity in the UK. In a note, analysts at ING wrote:

“Apart from this, the data calendar is very light in the UK in the coming days, and sterling should remain mostly driven by expectations about the full reopening of the UK economy by 21 June, something which has been put in doubt by recent government comments.”

GBP/USD technical analysis

On the daily chart, we see that the GBP/USD has been on a strong upward trend in the past few months. Today, the pair managed to move above the year-to-date high of 1.4247. It then rose to the highest level in more than three years. The pair is above the 25-day moving average while the Stochastic Oscillator has moved above overbought level. The pair will remain in a bullish trend so long as it is above the 25-day moving average.