The Bank of England is changing its mind, and encouraged by its unwillingness to hint at the end of the monetary policy tightening cycle, the pound feels like a fish out of water. Everything goes to the fact that the recession in the U.S. economy will come faster than in Britain, which inspires the GBPUSD bulls to new attacks. And even a new wave of panic around the European banking system in general and Deutsche Bank, in particular, did not scare sterling fans much.

In March, the Bank of England raised the repo rate for the 11th time in a row by 25 bps and brought it to 4.25%, the highest since the global financial crisis of 2008. It said the country's banking system remains resilient and that it may need to raise borrowing costs further to fight inflation. This message contrasts with Andrew Bailey's recent speech, which warned markets against betting on higher borrowing costs. Although, that's not the only change in BoE's sentiment.

Dynamics of the repo rate and inflation in Britain

Four months ago, the Bank of England predicted a prolonged and deep recession for five consecutive quarters, making reference to the energy crisis and the negative consequences of Brexit. In March, Bailey said that there is a very high probability that the British economy will avoid a recession this year.

Indeed, despite February's unexpected jump in inflation from 10.1% to 10.4% on an annualized basis, the population continues to spend aggressively, and businesses report expanding their activities. UK retail sales, for example, rose 1.2% in the final month of the winter after rising 0.9% month-on-month in January. Despite the composite Purchasing Managers' Index down from 53.1 to 52.2 in March, the index is above the critical 50 mark, indicating that the economy is expanding.

Dynamics of business activity in Britain

Thus, the discrepancies are obvious. If because of the banking crisis, investors are increasingly talking about an imminent recession in the United States, the Bank of England has changed its mind and says that there will not be a recession. Jerome Powell signaled a pause in the Fed's tightening of monetary policy, with the derivatives market giving an 87% chance of keeping the federal funds rate at 5% in May. At the same time, investors expect the repo rate to continue rising.

Divergences in economic growth and in the monetary policy of central banks create a solid foundation for an upward trend in GBPUSD. Of course, no trend is complete without corrective movements, but pullbacks, for instance, related to the panic about the banking crisis, makes sense to use for buying sterling against the U.S. dollar.

Technically there is a high probability that GBPUSD will leave the medium-term consolidation range of 1.18–1.24 and will restore the bullish trend. We remain focused on long positions in the direction of the previously announced targets at 1.235 and 1.26.