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GBP/USD Forecast: Fresh attack on 1.30? lockdown risks loom, Brexit brings hope

  • 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

Author

Yohay Elam

Yohay Elam

FXStreet

Yohay is in Forex since 2008 when he founded Forex Crunch, a blog crafted in his free time that turned into a fully-fledged currency website later sold to Finixio.

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