GBP/USD: Northern lockdown and end-of-month flows to trigger a correction

GBP/USD has surged above 1.31 amid a massive dollar sell-off but the new lockdown in parts of northern England and end-of-month adjustment may trigger a correction, according to FXStreet’s analysts Yohay Elam.

Key quotes

“North in Lockdown 2 – the headline of one of Britain’s tabloids sums up the developments with which around 4.3 million Brits living in Manchester and in other parts of northern England have to deal with. The spike in cases in these regions triggered an announcement late on Thursday, triggering confusion.” 

“While the UK seems to slap restrictions before coronavirus cases leap, some US states are not as strict – or at least the outcomes are far from satisfying. The caseload has stabilized at a high rate of around 70,000 per day while daily deaths continue advancing, surpassing the 1,200 level on average.” 

“The greenback is suffering from a multitude of reasons. Safe-haven flows continue unwinding while speculation of further Fed stimulus – as Yield Curve Control (YCC) are pushing returns on bonds lower, dragging the dollar down with them. US GDP for the second quarter came out better than expected – but still a devastating 32.9% annualized drop. Moreover, continuing claims for the week ending July 17 disappointed by topping 17 million.” 

“While the UK government is keen on providing relief and stimulus, American lawmakers continue tussling on the next steps while the unemployed are losing their special federal benefits. Optimism about progress in talks between Republicans and Democrats may help the dollar – but investors will believe it when they see it.”

“Nevertheless, the surge in GBP/USD may screech to a halt – at least on the last day of the month. Money managers may rush to adjust their portfolios and this phenomenon may favor a correction.”