GBP/USD has more room to rise than fall, specter of a British lockdown may limit gains

GBP/USD has been rising amid fresh Brexit hopes and despite the Bank of England’s dovish shift. On Friday, speculation about a new UK lockdown and data on both sides of the pond are eyed, FXStreet’s analyst Yohay Elam reports.

Key quotes

“‘I am convinced a UK-EU deal is still possible’ – These words by European Commission President Ursula von der Leyen have given sterling another boost. The pound was already on an upward path after PM Boris Johnson compromised with members of his Conservative Party after they expressed concerns about a controversial piece of legislation.”

“Additional upbeat news came from August’s retail sales figures. Consumption rose by 0.8% on a monthly basis, better than expected. Consumption is up 2.8% yearly, pointing to a V-shaped recovery – at least in shopping.” 

“All these pound-positive developments manage to counter the BoE’s dovish message. The BoE seems to have taken a significant step toward setting negative interest rates. The bank is examining the effectiveness and implementation of such a move. However, the BoE’s cautious outlook and rising level of uncertainty have likely pushed Governor Andrew Bailey and his colleagues to consider that policy.” 

“COVID-19 cases are rising in the UK, with additional local lockdown considered in northern England. Several health experts have reportedly called for a new national shuttering. So far, only Israel announced a second lockdown which begins on Friday. Health Secretary Matt Hancock said he is unable to say how close Britain is to such a move. Additional speculation could weigh on the pound.” 

“Later in the day, the University of Michigan’s preliminary Consumer Sentiment for September is of interest. If it falls short of expectations – as retail sales for August did earlier in the week – it could eventually have a positive impact. Why? It could push Democrats and Republicans to agree on a new and generous relief package that could boost the economy and weigh on the safe-haven dollar.”