GBP/USD Forecast: Sterling set to rise on UK reopening and (temporary) dollar decline

Different tone, same policy – UK Prime Minister Boris Johnson has urged the public to remain vigilant when the economy reopens on July 19 but refrained from making any changes to policy despite a rise in COVID-19 cases.

Daily infections topped in 34,000 in the latest update. Government figures point to thousands of hospitalizations and hundreds of deaths in a "central scenario" Nevertheless, the PM wants to use the "natural firebreak" of summer holidays to act now. Britain is well-advanced in its vaccination drive, with over 68% of the population fully protected and investors cheer for this reopening. 

Will sterling continue benefiting from the resumption of economic activity? The pound will likely react only to a change in course by the government or a new assessment from the Bank of England. The BOE's freshly released Financial Stability Report notes improved economic prospects but lists covid as a risk.

The highlight of the day for GBP/USD is America's inflation report. The headline Consumer Price Index is set to edge down from 5% in May to 4.9% in June, while Core CPI – which tends to have more market impact – is forecast to advance from 3.8% to 4%. However, the sharp drop in lumber prices and the crash in lumber prices point to some cooling. 

US Consumer Price Index June Preview: Has inflation peaked?

Inflation statistics are released ahead of Federal Reserve Chair Jerome Powell's testimony on Wednesday. The world's most powerful central bank surprised investors with a hawkish tilt in June, but its meeting minutes already seemed more cautious. 

The more significant risk to dollar bears comes from America's Delta spread. The greenback is a safe-haven currency that receives a boost in times of trouble. If the world's largest economy lifts its foot from the accelerator, the entire world hits the brakes. US infections have risen some 94% in the past fortnight, and further moves cannot be ruled out as only 55% received one dose. 

See Delta Doom is set to storm America, the dollar could emerge as top dog

US and UK covid cases:

Source: FT

All in all, pound/dollar has room to rise on Tuesday, with high uncertainty about the next moves. 

GBP/USD Technical Analysis

Cable has been benefiting from upside momentum on the four-hour chart and has recaptured the 100 Simple Moving Average. Moreover, the Relative Strength Index (RSI) is still below 70, allowing for more gains. Overall, bulls are in the lead

Significant resistance awaits at 1.3910, which held GBP/USD down in recent days. It is followed by 1.3940, a cap from late June, and then by 1.40.

Support is at 1.3840, the weekly low, followed by 1.3785, 1.3750 and 1.3735 – the latter being a multi-month low.