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GBP/USD bulls bet on BoE action, testing bearish commitments at 4-hour resistance

  • GBP/USD is trapped between 4-hour support and resistance.
  • Traders focus on likely ongoing inflation prospects in a recovering UK economy, fulling higher GBP prices.

GBP/USD is currently trading at 1.416 at the time of writing and has travelled between a high of 1.4183 and a low of 1.4111.

Sterling drifted higher against the US dollar despite the risks of the COVID variant, first found in India, which could set back the final phase of reopening in Britain on June 21.

The UK has recorded no new deaths within 28 days of a positive COVID-19 test on Tuesday for the first time since March 2020 and 

But British Prime Minister Boris Johnson said on Wednesday that he will have to take into consideration the implications in lifting further restrictions in June.

Johnson said that scientists will need more time for data on the impact of the vaccine on the Delta variant.

Meanwhile, the pound continues to attract investment as the UK economy is sighted one of the first to rebound from the covid crisis.

For instance, British retailers have reported the smallest price falls since the start of the COVID-19 pandemic.

The Bank of England is being priced in this regards as pressures look set to rise further in 2021.

The Bank of England policymaker Gertjan Vlieghe said last week, for instance, that the central banks could increase interest rates earlier than 2022 if the economy rebounded more quickly than expected.

BoE appears increasingly concerned about rising housing prices.

Deputy Governor Cunliffe, in charge of financial stability, explained the following:

“What we’re seeing in the housing market at the moment is being driven mainly by the tax holiday.  We’ve seen very fast rises in house prices and transactions before tax holidays in the past. There are some signs that people are making different housing choices that may affect the future.”  

Meanwhile, Deputy Governor Ramsden, warned that “there is a risk that demand gets ahead of supply and that will lead to a more generalized pick-up in inflationary pressure. That’s something we are absolutely going to guard against. We are looking carefully at the housing market and a raft of real-term indicators.” 

GBP/USD technical analysis

The price has rallied into the neckline of the M-formation and it would be expected to find resistance at this juncture. 

With that being said, a break of the neckline will open risk to an upside continuation. 

Moving into the 4-hour charts, the price is indeed correcting to the downside to a neckline of the W-formation in a trapped environment between support and resistance

 

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