GBP/USD Forecast: Brexit, bearish bias, and fears of a Birmingham lockdown all weighing
It only takes a “selfish few” to bring Birmingham – a large English city – to the brink of lockdown. The British media has been reporting about illegal parties as one of the reasons for the rise in coronavirus cases in the city – which is the UK’s second-largest, alongside Manchester.
The British government is struggling to control COVID-19 – and how to reopen schools. Prime Minister Boris Johnson has reportedly taken over education policy after a messy week around exam scores. Confidence in the government’s policies is dropping, lowering the chances that Brits follow the rules.
Given the gradual increase in infections, the intention to discontinue the successful furlough scheme – that kept millions of Brits in jobs – is reconsidered. The program is set to expire in October and may send the economy over a cliff. Chancellor of the Exchequer Rishi Sunak has repeatedly said the scheme is unsustainable but may change his mind.
Another precipice the UK could figuratively fall off is – another round of talks has ended without progress. The mutual announcements sent sterling down on Friday and continue weighing on it. The transition period expires at year-end and talks could come down to the wire.
Coronavirus and Brexit have hamstrung GBP/USD, despite dollar weakness. The safe-have greenback has come under pressure amid hopes for ushering a coronavirus vaccine. President Donald Trump’s push for approving plasma treatment is also supporting and dragging the dollar down.
The greenback is retreating after the Federal Reserve-driven rise last week. The Fed minutes showed reluctance to introduce more stimulus back in late July. The focus is now shifting to the bank’s Symposium, which will be held virtually due to the virus. , Chairman of the Federal Reserve, is set to speak on Thursday and tension is already mounting.
Overall, GBP/USD has failed to benefit from the dollar’s weakness and may fall once the greenback stabilizes.
GBP/USD Technical Analysis
Pound/dollar is trading below the 50 and 100 Simple Moving Averages on the four-hour chart and is suffering from downside momentum. Moreover, the currency pair’s second move to the upside failed to teacher the previous peak – a lower high that is also a bearish sign.
Support awaits at 1.3050, Friday’s low, followed by 1.3005, a stubborn cushion from the previous week. Further down, 1.2950 and 1.29 await GBP/USD.
Resistance is at 1.3035, a swing high from early August, followed by 1.3185, a peak from around that time. The recent multi-month high of 1.3260 is the next line to watch.