GBP/USD flirts with 13-day low as Brexit, coronavirus jitters combat USD pullback

GBP/USD hesitates to rise past 1.3800, up 0.05% around 1.3812 heading into Friday’s London open, despite softer US dollar. The reason could be linked to the spills from the covid woes and Brexit fears.

As per the latest virus figures, the UK’s death toll is 15 times higher than the early May levels whereas the daily infection is more than eight times. That said, the nation reported 33,074 new cases on Thursday, the highest daily rate since July 23. It’s worth noting that the Independent conveyed British scientists’ fears of a jump in the virus cases as “the nation’s attention turned to the end of pandemic-related restrictions and holidays in the sun.”

On the other hand, “the poll conducted on behalf of consumer choice group Which? said they felt the Government was “not at all open” about the impact new trade deals (post-Brexit) will have,” per the Independent.

Additionally portraying the Brexit jitters is Reuters’ piece, relying on the roll-on/roll-off (RoRo) traffic between Irish and British ports. The news said, “The introduction of checks on some goods since neighboring Britain left the EU's trading orbit on Dec. 31 cut imports from Britain by 35% in the first five months of 2021 while the number of shipping routes to mainland Europe more than doubled.”

Furthermore, around 60,000 of the European Union (EU) citizens have missed the deadline to apply to stay in the UK and the same could spark another Brexit backlash among the old allies.

The GBP/USD pair dropped to the multi-day low the previous day despite upbeat Q2 GDP, 4.8% QoQ versus -1.6% prior. The reason could be linked to the US dollar’s broad strength following the Producer Price Index (PPI) data suggesting the need for tapering. The hawkish concerns were also backed by the Reuters’ poll and recent comments from the Fed policymakers. Even so, Independent said, “New data revealed that GDP is now only 4.4% below where it was before the crisis hit in the latest sign that the UK economy is rebounding strongly from the pandemic.”

Elsewhere, US President Joe Biden’s push for lower vaccine prices and Moderna’s study suggesting a six-month antibody versus the virus strains seem to challenge the GBP/USD bears by weighing on the US Dollar Index (DXY), down 0.06% by the press time.

Considering a lack of major data/events, macros will be the key for GBP/USD traders. Even so, the US Michigan Consumer Sentiment Index for August, expected to remain unchanged around 81.2, shouldn’t be ignored.

Technical analysis

Given the quote’s downswing from 50-DMA, backed by the easing RSI line, not oversold, the GBP/USD prices are likely to remain under pressure. That said, the 200-DMA level of 1.3777 acts as the key immediate support to watch ahead of early July’s low surrounding 1.3730. However, two horizontal regions connecting lows from late March and early February, respectively around 1.3670-65 and 1.3570, will be tough nuts to crack for the pair sellers after 1.3730.