GBP/USD Forecast: Sterling's rise hobbled by Brexit friction, rising UK covid cases

Fed fuel as its limits – sterling is struggling to take advantage of dollar weakness and that may indicate an inability to reach higher ground. While EUR/USD has hit new highs, GBP/USD is lagging behind. 

There are two reasons for the pound's issues. First, Brexit refuses to die, and with it, the frictions around the Northern Ireland protocol. European Commission President Ursula von der Leyen stated there can be no changes to the agreement signed, angering London.

UK Prime Minister Boris Johnson's insistence that there will be no customs checks on the Irish Sea – separating Great Britain and Northern Ireland – contradicts the Withdrawal Agreement. Both sides still need to settle regulations related to the services sector. 

Secondly, coronavirus cases have been picking up in the UK. Britain had been leading the vaccine drive among large economies and also benefited from the fruits of the effort – a quick reopening. However, the fast spread of a variant first identified in Britain has been causing an uptick. While the plans to fully reopen are still on track, the swing higher may further hobble sterling.

Source: FT

On the other side of the pond, the dollar suffered from the Federal Reserve's consistent message that the economy still has a long way to go and that rising inflation is transitory. The latest to provide such comments were Fed Governor Lael Brainard and Esther George, a known hawk. Their colleagues Charles Evans and Randal Quarles will speak later in the day. 

The Conference Board's Consumer Confidence measure for May – and its inflation components – are also of interest. 

US Conference Board Consumer Confidence May Preview: Inflation saps consumer sentiment

Overall, even if the dollar remains on the back foot, sterling has its own issues.

GBP/USD Technical Analysis

Pound/dollar remains in an uptrend – the four-hour chart is pointing to higher highs and higher lows. However, upside momentum is not as strong as it used to be earlier in the month and the pair already dipped below the 50 Simple Moving Average. 

Some resistance is at the round 1.42 level. It is followed by 1.4220, May's high, and then by the 2021 peak of 1.4240. 

Support is at 1.4160, a peak in early May, followed by 1.41, a support line from last week. Further below, 1.4075 and 1.4050 await the pair.