GBP Still Soft
The British Pound is continuing to languish this week despite confirmation from the UK government that lockdown restrictions will end on July 19th. The government announced this week that mandatory mask wearing and social distancing will be scrapped as of the date, following a delay of almost a month from the initial June 21st date. Despite the news, however, GBP remains near last weeks lows.
Delta Variant Concerns
Investor sentiment towards GBP had been steadily improving up to the start of June when the spread of the delta variant first raised questions over the likelihood of the June 21st date being maintained. The subsequent announcement that the lockdown easing would be postponed struck a blow to GBP bulls, sending the pound lower over the last month.
BOE Remains Optimistic
Despite the spread of the delta variant, however, the BOE has maintained a broadly optimistic tone. While monetary policy has been held unchanged, with no signal yet regarding tapering, the BOE has upgraded its economic forecasts and cites a stronger than expected pace of recovery.
Indeed, recent data out of the UK has continued to highlight an improving picture with key indicators across the board surprising to the upside. Inflation expectations have been on the lift also, reflecting the growing optimism ahead of lockdown ending and the return of the hospitality sector and travel sector.
Lockdown Ending In Focus
However, the stickiness in GBP here raises suggests the market is more fearful over the delta variant than the government is. With cases growing, there is perhaps some concern that either the re-opening will be postponed last minute or that re-opening will simply lead to a fresh escalation of the virus, forcing a return to stricter lockdown conditions.
With this in mind it seems that, sadly, as was the case this time last year, the market will be keeping a close eye on COVID stats as the government prepares to reopen. If hospitalisations stay low, GBP is likely to start to recover as traders put more faith in the re-opening. However, if hospitalisations start to spike, this raises the risk of lockdown being reintroduced, and will weigh on GBP.
Technical Views
GBPJPY
The correction lower in GBPJPY has been framed by a bearish trend line from the highs. For now price is sitting around the 153.39 level. With MACD and RSI both slightly down, there is room for deeper correction on a break of 151.36. However, while this level holds, look for a pop above the bearish trend line, putting focus back on 156.66.
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With 10 years of experience as a private trader and professional market analyst under his belt, James has carved out an impressive industry reputation. Able to both dissect and explain the key fundamental developments in the market, he communicates their importance and relevance in a succinct and straight forward manner.