GBP/USD: Struggles near 10-week top above 1.4100, focus on BOE’s Bailey

GBP/USD fades bounce off intraday low of 1.4113 as sellers aim for risk trade near the highest since late February ahead of Tuesday’s London open. The cable cheered hardships for the Scottish referendum and easing of the coronavirus (COVID-19)-led activity restrictions the previous day to cross the key hurdle and refresh multi-day top. However, markets struggle for direction afterward amid reflation fears, which in turn backs the US dollar’s bounce. Hence, today’s commentary from the Bank of England (BOE) Governor Andrew Bailey will be the key.

With the Conservatives’ ability to keep majority power versus the Scottish National Party (SNP), UK PM Boris Johnson cheers local election results that defy odds for a second referendum on Scotland’s exit from Britain. Also on the positive side was UK PM Johnson’s announcement to ease covid lockdown alert level from 4 to 3 as Britain marks zero new coronavirus deaths for the first time in more than a year.

Even so, doubts concerning the Fed’s future action and chatters that the covid and Brexit cost too heavy probe the GBP/USD bulls. As per the latest forecast from the National Institute of Economic and Social Research (NIESR), said the cumulative loss of economic output would be worth £727bn over the five years. “The UK’s oldest independent economic research institute said the level of GDP was on track to be almost 4% lower in 2025 than it would have been without the pandemic,” the report added.

Against this backdrop, stock futures remain offered while the US 10-year Treasury yields and the US dollar index (DXY) recently pick up bids.

Looking forward, BOE’s Bailey needs to defy the reflation risk, despite being hawkish, to keep the GBP/USD bulls happy. Also, Queen Elizabeth II will make her first public appearance, after her husband’s death, to kick-start the parliament. The UK leader may speak on the government’s agenda wherein Johnson is up for state aid and government procurement overhaul.

Technical analysis

The upper line of the one-month-old rising trend channel around 1.4145 tests GBP/USD bears amid overbought RSI conditions, suggesting a pullback move towards the previous key resistance area around 1.4020-10 comprising multiple tops marked since early March.