Breakdown of the latest developments on the global exchanges
Jul 1, 2021, 10:26 AM GMT

Bailey Says Inflation is Temporary, Sends the GBPUSD Tumbling Down

Andrew Bailey, the Governor of the Bank of England, gave a speech earlier today, and send the GBPUSD tumbling down

The GBPUSD pair remains pressured by the strengthening of the U.S. dollar. To understand why the GBPUSD is tumbling down, check out our latest comprehensive analysis of the cable.

Andrew Bailey, Governor of Bank of England, commented on the supply bottlenecks that are currently underpinning the economic recovery in the U.K. He views these short term supply gluts as primary drivers of the temporary inflation spikes. This catalysed further selloff on the GBPUSD today.

The price of the GBPUSD broke down below a major support area as the price continues to dive deeper

As can be seen on the 2H chart above, the price action broke down below the Support Area (in green) following Bailey's remarks, which underscores the strong bearish sentiment in the market.

This happened shortly after the price had already broken down below the lower boundary of the major Triangle pattern.

What is even more demonstrative of the robust selling pressure in the short term is the fact that the price action remains concentrated below the 20-day MA (in red), which is positioned below the 50-day MA (in green). The 100-day MA (in blue), in turn, is currently threading above all of the other moving averages.

This perfect descending order is illustrative of the prevailing selling pressure in the short term. In all likelihood, the currently strengthening dollar is likely to continue sending the GBPUSD tumbling down.

Unconventional Recovery

In his policy statement, Andrew Bailey adopted a similar stance to the one of Jerome Powell, Chair of the FED. In suggesting that inflation is temporary, the Governor of BOE emphasised on the rapidly changing economic conditions that have caused the aforementioned supply bottlenecks in the first place.

"Where the recovery in demand outstrips supply, it is entirely possible that we will witness temporary periods of excess demand, or what more commonly we might describe as “bottlenecks”. This is especially likely within particular sectors, given the uneven nature of the recovery. […] additional price pressures can arise from the various shortages caused by imbalances in the recovery of supply and demand, as the latter recovers more rapidly than the former. But these imbalances should not last."