GBP/USD Forecast: Freed from “Freedom Day” speculation, sterling could surge

  • GBP/USD has been hovering around 1.41 after the dollar staged a comeback. 
  • UK PM Johnson is set to announce a four-week delay to Britain's last stage of its reopening. 
  • Monday's four-hour chart is painting a mixed picture.

Freedom Day, delayed – the Delta COVID-19 variant has been spreading quickly in Britain, causing the vast majority of over 7,000 infections per day. On this background, UK Prime Minister Boris Johnson is set to announce a four-week delay to the last stage of the reopening. July 19 is the new June 21, at least according to The Times. 

Will Johnson's announcement trigger a sell-off in sterling? Not so fast, as markets do not wait for official announcements to move. Speculation about a four, rather than two-week postponement were circulating already on Friday and are priced in. A "buy the rumor, sell the fact" response is more likely. 

Johnson has insisted that the UK's reopening is "irreversible," meaning no setbacks to restrictions already loosened, only potential pushback of the timetable. Assuming he sticks to his promises – and nothing is certain – the pound has room to rise once the PM takes to the stage. 

On the other side of the pond, the dollar staged a comeback on Friday, seemingly a late response to Thursday's robust inflation figures. However, price rises were driven by items related to the rapid reopening such as airfares, used cars, and apparel. The Federal Reserve, which convenes later this week, will likely stick to its stance that inflation is transitory. 

US Inflation Analysis: As high as it gets? Fed may still stick to "transitory" stance, dollar could suffer

Moreover, the University of Michigan's Consumer Sentiment Index showed expectations for future price rises are somewhat tamer than they used to be. The Fed is watching that closely. Without an unanchoring of inflation, Chair Jerome Powell and his colleagues will likely refrain from tapering their $120 billion/month bond-buying scheme. That will probably have to wait until late August. 

All in all, cable has room to recover. 

GBP/USD Technical Analysis

Pound/dollar has bounced off the 200 Simple Moving Average on the four-hour chart but suffers from downside momentum – a mixed picture. 

Some support awaits at 1.41, the daily low, followed by last week'y trough of 1.4075 and then 1.4055 and 1.4010.

Resistance is at 1.4120, the daily high, and then 1.4185, which was a swing high last week. Further above, 1.4220 and 1.4250 await sterling. 

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