GBP/USD Forecast: Fresh attack on 1.30? lockdown risks loom, Brexit brings hope
Premium|Take advantage of 50% OFF on your first month.
Start your subscription and get access to all our original articles.
You have reached your limit of 5 free articles for this month.
Get Premium without limits for only $9.99 for the first month
Access all our articles, insights, and analysts.
UNLOCK OFFER- GBP/USD has been rising amid fresh Brexit hopes and despite the BOE's dovish shift.
- Speculation about a new UK lockdown and data on both sides of the pond are eyed.
- Friday's four-hour chart is showing an improving picture for the bulls.
"I am convinced a UK-EU deal is still possible" – These words by European Commission President Ursula von der Leyen have given sterling another boost.
The pound was already on an upward path after Prime Minister Boris Johnson compromised with members of his Conservative Party after they expressed concerns about a controversial piece of legislation. The PM has allowed greater parliamentary oversight over the Internal Markets bill – which knowingly violates the Brexit accord with the EU.
Additional upbeat news came from August's retail sales figures. Consumption rose by 0.8% on a monthly basis, better than expected. Consumption is up 2.8% yearly, pointing to a V-shaped recovery – at least in shopping.
Cable is also benefiting from the retreat of the US dollar. After gaining ground in response to the Federal Reserve's reluctance to add more stimulus, traders seem to be taking profits ahead of the weekend.
All these pound-positive developments manage to counter the Bank of England's dovish message. The BOE seems to have taken a significant step toward setting negative interest rates.
The bank is examining the effectiveness and implementation of such a move. Previously, taking borrowing costs below zero was seen as a remote option. However, the BOE's cautious outlook and rising level of uncertainty have likely pushed Governor Andrew Bailey and his colleagues to consider that policy.
See BOE Analysis: Bailey blasts sterling with specter of negative rates,
The bank is also concerned about the course of the virus. COVID-19 cases are rising in the UK, with additional local lockdown considered in northern England. Several health experts have reportedly called for a new national shuttering. So far, only Israel announced a second lockdown which begins on Friday.
Health Secretary Matt Hancock said he is unable to say how close Britain is to such a move. Additional speculation could weigh on the pound.
Later in the day, the University of Michigan's preliminary Consumer Sentiment for September is of interest. If it falls short of expectations – as retail sales for August did earlier in the week – it could eventually have a positive impact. Why? It could push Democrats and Republicans to agree on a new and generous relief package that could boost the economy and weigh on the safe-haven dollar.
See US Michigan Consumer Sentiment September Preview: A large dose of reality
Overall, investors have several factors to consider as a volatile week draws to an end. While the pound has more room to rise than fall, the psecter of a British lockdown may limit gains.
GBP/USD Technical Analysis
Momentum on the four-hour chart is positive, and the currency pair topped the 50 Simple Moving Average, both bullish developments. However, GBP/USD is still trading below 1.30 – which is not only a psychologically significant level but also a stubborn separator of ranges.
Above 1.30, the next line to watch is 1.3045, which capped cable last week, followed by 1.3150, a support line in both August and September.
Support awaits at 1.2920, which capped cable early in the week, and then 1.2855, Thursday's low. Further down, 1.2765 is September's low.
More How central bank inaction turns to action in currencies and what's next for markets
- GBP/USD has been rising amid fresh Brexit hopes and despite the BOE's dovish shift.
- Speculation about a new UK lockdown and data on both sides of the pond are eyed.
- Friday's four-hour chart is showing an improving picture for the bulls.
"I am convinced a UK-EU deal is still possible" – These words by European Commission President Ursula von der Leyen have given sterling another boost.
The pound was already on an upward path after Prime Minister Boris Johnson compromised with members of his Conservative Party after they expressed concerns about a controversial piece of legislation. The PM has allowed greater parliamentary oversight over the Internal Markets bill – which knowingly violates the Brexit accord with the EU.
Additional upbeat news came from August's retail sales figures. Consumption rose by 0.8% on a monthly basis, better than expected. Consumption is up 2.8% yearly, pointing to a V-shaped recovery – at least in shopping.
Cable is also benefiting from the retreat of the US dollar. After gaining ground in response to the Federal Reserve's reluctance to add more stimulus, traders seem to be taking profits ahead of the weekend.
All these pound-positive developments manage to counter the Bank of England's dovish message. The BOE seems to have taken a significant step toward setting negative interest rates.
The bank is examining the effectiveness and implementation of such a move. Previously, taking borrowing costs below zero was seen as a remote option. However, the BOE's cautious outlook and rising level of uncertainty have likely pushed Governor Andrew Bailey and his colleagues to consider that policy.
See BOE Analysis: Bailey blasts sterling with specter of negative rates,
The bank is also concerned about the course of the virus. COVID-19 cases are rising in the UK, with additional local lockdown considered in northern England. Several health experts have reportedly called for a new national shuttering. So far, only Israel announced a second lockdown which begins on Friday.
Health Secretary Matt Hancock said he is unable to say how close Britain is to such a move. Additional speculation could weigh on the pound.
Later in the day, the University of Michigan's preliminary Consumer Sentiment for September is of interest. If it falls short of expectations – as retail sales for August did earlier in the week – it could eventually have a positive impact. Why? It could push Democrats and Republicans to agree on a new and generous relief package that could boost the economy and weigh on the safe-haven dollar.
See US Michigan Consumer Sentiment September Preview: A large dose of reality
Overall, investors have several factors to consider as a volatile week draws to an end. While the pound has more room to rise than fall, the psecter of a British lockdown may limit gains.
GBP/USD Technical Analysis
Momentum on the four-hour chart is positive, and the currency pair topped the 50 Simple Moving Average, both bullish developments. However, GBP/USD is still trading below 1.30 – which is not only a psychologically significant level but also a stubborn separator of ranges.
Above 1.30, the next line to watch is 1.3045, which capped cable last week, followed by 1.3150, a support line in both August and September.
Support awaits at 1.2920, which capped cable early in the week, and then 1.2855, Thursday's low. Further down, 1.2765 is September's low.
More How central bank inaction turns to action in currencies and what's next for markets
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers.