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FX.co ★ GBP/USD. British pound follows the US dollar

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Forex Analysis:::2021-09-07T06:47:14

GBP/USD. British pound follows the US dollar

The GBP/USD pair is trading in a flat within the level of 1.38. Jerome Powell's cautious stance, and the disappointing Nonfarm data, allowed GBP/USD buyers to develop a large-scale correction. At the end of August, the pound was at the base of the 1.36 level, but it was able to strengthen by more than 200 points in two and a half weeks. Almost all major currency pairs showed similar dynamics, which suggests that they all depend on the US dollar's well-being.

It can be noted that dollar bulls can't really find a foothold, since market expectations regarding the curtailment of QE have shifted at least to November (some experts also admit a December option), amid slowing inflation, weak employment growth, and the "delta" strain raging in the States. All these fundamental factors led to the fact that the dollar index fell from the level of 93.5 to the base of 91.00. And then, dollar pairs have changed their configuration accordingly. The GBP/USD pair is no exception here.

GBP/USD. British pound follows the US dollar

However, the upward impulse for the pair has noticeably disappeared this week. The market played out all the above factors and came to a logical question – what is next? The pound failed to pick up the falling banner and continue the upward course as the "delta" strain is raging in Britain, and the Bank of England similarly takes a cautious and hesitant position. In addition, the past problems, which are so unpleasant to the British currency have appeared again. This is the long-running "Scottish issue" and the question of the Northern Ireland protocol. Lastly, we have the UK economic growth data (due for release on Friday), which should reflect a slowdown in the recovery process.

All this suggests that further upward prospects for GBP/USD depend on the "degree of weakness" of the US currency. The pound is under the background pressure of many fundamental factors and only the decline in the US dollar index keeps the pair afloat.

Yesterday, the pound received slight support from Brexit. It became known that the UK has extended grace periods for trade in Northern Ireland. But the problem itself has still remained unresolved. It can be recalled that at the beginning of the summer, London declared that the Brexit protocol on Northern Ireland is wrong and that Downing Street wants to significantly rewrite it. The British have unilaterally extended the transition period for British suppliers of certain products and goods to Northern Ireland. This dispute could well have ended in a trial in a Luxembourg court, but the parties decided to sit down at the negotiating table anyway. The long-playing dialogue has so far led to nothing.

On the other hand, the "Scottish issue" can make itself known today. Recall that the Scottish nationalists have recently become even closer to a new referendum on independence. London has previously given the go signal for its holding if at least 60% of the region's residents support this initiative. The first meeting of the newly formed regional government of Scotland will take place today, and in a few days – the congress of the Scottish National Party, whose members are actively lobbying for the idea of declaring the independence of the region. In other words, Scotland's issue will be heard in the coming days, and this fact will put background pressure on the pound.

GBP/USD. British pound follows the US dollar

The "coronavirus factor" also does not add to the attractiveness of the pound, although in this case, the situation is ambiguous. On the one hand, the number of cases continues to grow – only in the last day, a coronavirus infection was detected in 41 thousand people (almost a two-month anti-record). On the other hand, the market approaches the issue of the spread of coronavirus in its own way, and this approach is quite pragmatic. Traders are primarily concerned about the reaction of the authorities and the possible economic consequences of the next wave of the epidemic in the context of new lockdowns. It is known that there are no plans to introduce new quarantine restrictions in the UK in the near future since the number of hospitalizations and deaths remains much lower than last year's level due to vaccination. In the UK, the absolute majority of the adult population has been vaccinated against coronavirus.

Therefore, the pound is not capable of "its own game" and remains in the fairway of the US dollar, which cannot determine the vector of its movement. From the technical point of view, the GBP/USD pair on the daily chart is located between the middle and upper lines of the Bollinger Bands indicator, above the Tenkan-sen and Kijun-sen lines, but in the Kumo cloud. This suggests that an upward correction is possible up to the level of 1.3900 (the upper limit of the Kumo cloud coinciding with the upper line of the Bollinger Bands). It is advisable to consider sales in this area since the pound needs quite powerful arguments in order to break through the level of 1.39, which it does not currently possess. The support level is located at 1.3770 - this is the average line of the Bollinger Bands, which coincides with the lower border of the Kumo cloud on the same timeframe.

Analyst InstaForex
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