Pound Sterling's Recovery against USD Looks Premature Given New Wave of Delta Covid Closures across World’s Major Island Nations

The British pound is hovering around $1.375 and is currently posting its first weekly gain against the dollar since late July, enticing Fx traders to join in as a rebound in risk sentiment helped support major world currencies beyond the USD which are perceived as reopening plays. The Pound’s 200-day EMA has also come into the picture from a technical analysis standpoint, so it does make sense to expect a bit of a bounce. By doing that, the market looks as if it is trying to save itself, after forming a significant “double bottom.” External factors, such as fluctuations in the dollar rate amid risk appetite in global equity markets, have had a significant impact on the Pound Sterling in recent weeks for sure, so what we see isn’t a sporadic move.

However, is the global economy at the return-to-normal phase for sure? The resilience of the Delta variant of Covid-19 continues to cause problems around the world. Australia notched a fresh daily record for infections while New Zealand extended a lockdown in Auckland. In the U.S., public health advisors are meeting today to discuss booster shots as the White House continues to push for a Sept. 20 rollout.

Earlier this year, the rapid pace of COVID-19 vaccinations in the UK and generally the so-called reflationary trade in global markets allowed the Pound to become the best among the G10 currencies, but it has since lost this lead as the U.S. Federal Reserve began to hint at the future. curtailing the incentive program.

Hints of future tapering, as well as uncertainty over the spread of the Delta variant coronavirus, have in turn eroded risk sentiment and boosted demand for the safe plays, i.e. U.S. dollar. So, back to Pound’s technicals and forecast, the market still has more power to advance towards the 50-day EMA from here, but there is a significant amount of resistance around the 1.3850 handle. Other things being equal, Pound is very unlikely to effortlessly rise above that level unless there is more consistent data towards reopening of the UK economy and resumption of the TransAtlantic flights.