GBP/USD struggles on the way to 1.3900 as coronavirus, Brexit battle softer USD

GBP/USD remains on the front foot, recently sideways, around 1.3870 during Monday’s initial Asian session. The cable jumped the most since late July on broad US dollar weakness the previous day. However, challenges from Brexit and coronavirus seem to probe the pair bulls of late.

The US Dollar Index (DXY) dropped the most in three months on the lowest Michigan Consumer Sentiment Index in 10 years the previous day. Also challenging the US dollar were the record hospitalizations for 30–39 years old due to the Delta covid variant.

On the other hand, firmer growth numbers and a bit better virus conditions, not to forget to unlock plans, kept the British pound (GBP) on the upper hand. It’s worth noting that the UK is up for giving the first COVID-19 jabs to 16-17-year-old in England by 23 August, per Sky News. On this, Health Minister Sajid Javid said, "This will make sure everybody has the opportunity to get vital protection before returning to college or sixth form." Furthermore, a news from the Financial Times (FT) suggesting a jump in the UK employment amid warnings over staff shortage keeps the GBP/USD buyers hopeful.

As per the latest virus numbers, 26,750 new infections were reported on Sunday versus 29,520 the previous day whereas death tolls eased from 93 to 61.

Apart from the covid woes that can help USD to consolidate the latest gains, Brexit woes also challenge the GBP/USD buyers. In the latest piece, the UK Express quotes Director of UK in a Changing Europe, Professor Anand Menon while saying, “Hostility from both sides was expected to continue for two key reasons. One reason being the issues surrounding Northern Ireland and another being the EU's determination to see Brexit fail.” It should be noted that the EU–UK policymakers are at loggerheads over Northern Ireland issues of late.

Additionally challenging the GBP/USD optimists is the likely hard road for UK Prime Minister Boris Johnson as iNews sites Britain’s emphasis on climate control to push the top diplomat, Steve Baker towards ousting UK PM Johnson. He is the same guy who helped Boris to gain the throne.

Amid these plays, S&P 500 Futures print mild losses to kick-start the week as traders look for China data dump to confirm the supply outage fears. Also likely to direct short-term GBP/USD moves are the qualitative factors relating to Brexit, covid and politics amid a light calendar during the rest of the day.

Technical analysis

Although sustained rebound from 200-DMA, around 1.3780, challenges GBP/USD bears, at least for now, 50-DMA and a descending resistance line from June 11, respectively near 1.3875 and 1.3905, guards short-term up-moves of the pair. Also acting as an upside hurdle is the 100-DMA level surrounding 1.3930. Overall, bullish momentum regains strength but the bulls are at the test.