- A combination of factors triggered new selling around GBP / USD on Monday.
- The nervousness of COVID-19 / Brexit acted as a headwind for the British pound amid renewed strength in the USD.
- The market’s attention continues to be on this week’s key macroeconomic data and Fed Chairman Powell’s testimony.
The pair GBP/USD it extended its intraday decline in the middle of the European session and fell to new daily lows, around the 1.3840 region in the last hour.
The pair struggled to capitalize on Friday’s strong rally of over 150 pips, or find acceptance above 1.3900 and found new offers on the first day of a new week. A steady increase in COVID-19 cases and related hospitalizations in Britain could have jeopardized the UK government’s plan to end most coronavirus restrictions on July 19. This, coupled with the new nerves from Brexit, acted as a headwind for the British pound.
In recent Brexit-related events, Brussels and London were embroiled in a dispute over the size of the UK’s Brexit bill. The EU confirmed on Friday that Britain is obliged to pay 47.5 billion euros (40.8 billion pounds) to the Union as part of its post-Brexit deals and that the calculation is final. Apart from this, the emergence of new buying around the US dollar put additional downward pressure on GBP / USD and contributed to the intraday decline.
Meanwhile, concerns about the economic fallout from the spread of the highly contagious Delta variant of the coronavirus continued to weigh on investor sentiment. This was evident by a generally weaker tone in equity markets, which benefited the relative safe-haven status of the US dollar. Aside from this, expectations that the Fed was moving toward tightening its monetary policy stance earlier further underpinned the dollar.
It’s worth remembering that the minutes of the June FOMC meeting released last Wednesday revealed that Fed officials agreed on the need to be prepared to act if inflation or other risks materialize. Therefore, the market will focus on the latest US consumer inflation figures, to be released on Tuesday. Aside from this, Fed Chairman Jerome Powell’s semi-annual testimony to Congress on Wednesday and Thursday will be considered for clues about the US central bank’s policy outlook.
This will play a key role in influencing short-term USD price dynamics. Apart from this, the monthly employment report and UK inflation figures should help investors determine the short-term trajectory of the GBP / USD pair. In the meantime, the events surrounding the coronavirus saga could help traders seize some short-term opportunities amid the absence of relevant economic releases to move the market, be it from the UK or the US. Monday.
Technical levels
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