GBP/USD: UK's surge in covid cases to weigh on the pound

GBP/USD has been torn between higher inflation and central bank dismissal – on both sides of the pond. According to FXStreet’s Analyst Yohay Elam, sterling may suffer while the Ban of England (BoE) looks the other way.

Inflation and covid remain the central themes

“Federal Reserve Chair Jerome Powell said the US economy is still ‘a ways off’ to a level that warrants tapering down the bank's bond-buying scheme. Moreover, Powell insisted that rising prices are reopening-related, and thus temporary – even as he acknowledged they could persist for a few months.”

“The picture is similar in the UK, albeit with more modest inflation. Consumers had to pay 2.5% more than last year for the same basket of goods in June. Nevertheless, Bank of England Governor Andrew Bailey clarified he will not be forced to raise rates due to such transitory inflation. This takes the wind out of the sterling's sails.” 

“Another factor that could pound the pound comes from the rapid spread of the Delta covid variant, just as the ‘big bang’ reopening is set to occur on July 19. The government seems keen on abandoning almost all limits, even as Brits are hesitant about maskless people in public transport.”

“Delta is also spreading in the US, and it could cause the Fed a further pause – but if the US significantly slows down, it could benefit the safe-haven dollar.” 

“Support awaits at 1.38, which is the weekly low. It is followed by 1.3750 and then by 1.3730. Resistance is at 1.3865, the daily high, and then 1.3905, a stubborn cape from last week.”