The pound-dollar pair came close to the borders of the 40th figure last week, but did not dare to storm the key resistance level of 1.4000. At the end of the US session on Friday, the GBP/USD bears seized the initiative and pulled the price into the area of the 38th figure against the background of the general strengthening of the US currency. At the beginning of the current five-day trading period, the downward momentum did not continue – moreover, bulls of the pair tried to return to the main price barrier again. However, as soon as the pound begins to gain momentum, traders take profits and open short positions, putting pressure on the pair. By and large, the pound has become a hostage to the situation: on the eve of the August meeting of the Bank of England (BoE) (Thursday), market participants do not dare to hold long positions or go "headlong" into short positions. Therefore, the pair, in fact, is stuck within the 39th figure in anticipation of a powerful information impulse.
In general, the pound is influenced by three main fundamental factors. Firstly, this is the coronavirus factor (in the context of a possible lockdown in the fall or winter), secondly, the position of the British central bank, and thirdly, the behavior of the US currency, which suspended its growth throughout the market after the announcement of the results of the July Federal Reserve meeting. A kind of "bonus" is Brexit, or to be more precise, its echoes in the form of establishing new trade relations with Europe. And not all of the above factors put pressure on the pound. On the contrary – the news flow is mostly positive for the currency. And the upcoming BoE meeting does not allow GBP/USD bulls to take the 40th figure by storm, opening new price horizons for themselves.
So, if we talk about the coronavirus factor, then, according to the latest data, the number of new cases of coronavirus in the UK has decreased by almost 35% over the past week. According to the British government, 26,144 cases of the disease were recorded on Saturday, while at the peak of the July outbreak, the daily increase was more than 50,000 cases. Then the indicator of morbidity turned sharply down, and since then (namely after July 20) it has been gradually but steadily decreasing. Such trends reduce the likelihood of repeated lockdowns – today Downing Street is ruling out the option of tightening quarantine restrictions, urging citizens to be vaccinated against Covid. And this is despite the fact that the British are one of the world leaders in terms of vaccination rates. Now in the country, almost 47 million citizens have been vaccinated with the first dose (in total, about 58 million adults in Britain). The second dose was received by more than 38 million residents of Great Britain.
The Brexit factor also plays in favor of the British currency. We are talking about the difficult trade relations between the European Union and Britain. Let me remind you that the European Commission launched a legal procedure against the UK in March of this year. The reason was the unilateral decision of London to postpone the implementation of the agreements on Northern Ireland. Brussels accused the British of making unauthorized amendments to the agreement, which was concluded the year before last. London has unilaterally extended the transition period for British suppliers of some products and goods to Northern Ireland until the autumn. This dispute could well have ended in a trial in a Luxembourg court. According to the court's decision, the British could receive significant fines, and a trade war could begin between the UK and the European Union. At least, many political observers were sure of this. Representatives of the European Commission expressed hope in the spring that the problem would be resolved following the results of bilateral consultations. The European side aimed to solve the problem together with the British side by the end of spring. However, this did not happen: at the end of June, the Deputy President of the European Commission, Maros Sefcovic, threatened that Brussels would "activate the judicial procedure of the proceedings".
And so, this week it became known that the European Union decided to suspend legal proceedings against Britain over the Northern Ireland protocol. The parties will sit down at the negotiating table again and try to come to a compromise solution. Reacting to this news (as well as to the coronavirus reports), the pound jumped to the level of 1.3930 against the dollar, where it attracted the attention of the bears.
