GBP/USD bulls shaken-up and out on COVID-19 variant worries

• GBP has been a wild ride at the start of the month.
• Bears are taking back control as the trajectory reverses on COVID-19 concerns. 

Against the US dollar, sterling has traded between 1.4155 and 1.4250, printing fresh cycle highs in Tokyo before it was slammed by almost 90 pips all the way back to the 10-day EMA as European traders came online. 

At the time of writing, GBP/USD is trading at 1.4156 and down by 0.35%.

Cable hit its highest level against the dollar since April 2018 with the 50 pip bullish impulse attributed to positive sentiment towards the UK economic recovery.

Sterling is one of the best performing G10 currencies versus the dollar this year, up almost 4% year-to-date as the economic recovery continues. 

For instance, British house prices jumped by an annual 10.9%, the most in nearly seven years.

Investment flows into the housing sector look set to accelerate further in a post covid economic recovery. 

Additionally, such data as Retail Sales and surveys of purchasing managers are underpinning the positive outlook as the nation moved into its third stage of reopening in May.

British manufacturing activity last month was also on the increase hitting records as the economy began to recover from the COVID-19 pandemic.

The bid undertone in the pound kicked into a higher gear last week when the currency found support in the comments from Bank of England policymaker Gertjan Vlieghe.

Vlieghe said a rate hike could come earlier in 2022 if the economy rebounded more quickly than expected.

Indian variant reveals weak hands in GBP

However, profit-taking ensued today and the sterling reversed its course. 

The reasoning behind the change of trajectory was put down to fears that a COVID variant, first found in India, could delay the next phase of the reopening on June 21.

When announcing his roadmap out of lockdown, the UK prime minister Boris Johnson said he would follow "data, not dates".

Sky News reported that ''data suggests that as many as three-quarters of new cases are now of the Indian mutation, prompting the prime minister to warn that the final stage of easing lockdown in England may have to wait.''

The worry is that despite more than half of the population has had at least one vaccination jab, ''the fact that a second jab appears to be needed more urgently to provide protection against the India variant compared with other virus versions means there is now intense pressure to complete Britain’s immunisation programme more quickly than planned,'' The Guardian wrote. 

The Guardian quoted Professor Adam Finn of Bristol University who said, “In the past, there was a lag of two to three weeks between cases rising and hospitalisations going up, and 21 June is only three weeks away. That is when we might find hospitalisations shooting up, and so we will have to think very fast – or face another lockdown this summer.”