The British Pound has come under heavy selling pressure this week with the UK currency now down almost 2.5% against the Dollar from last week’s highs. The selling comes despite the government following through on its “Freedom Day” (Monday July 19th) lockdown easing. As of Monday, the economy has been reopened in full with the return of the hospitality sector and the easing of restrictions on mask wearing and social distancing.
Delta Cases Soaring
However, despite the move, market uncertainty remains elevated given the soaring number of Delta cases in the UK. With infections, hospitalisations and deaths all rising, there is a strong fear that the current reopening underway will end in disaster, with many critics projecting a return to full lockdown after the summer. Additionally, the government’s announcement this week that, as of September, revellers will need to present COVID passports to gain entry to nightclubs and music venues, comes as a big blow to the hospitality sector once again.
The UK economy is also grappling with a fresh situation caused by the COVID crisis. The “pingdemic” as its bene referred to (UK citizens being pinged by the NHS track-and-trace app and told to self-isolate for 7 days) has caused chaos for businesses. With soaring levels of staff being told to self-isolate, an increasing number of businesses across all sectors are being forced to temporarily close due to staffing issues. With Delta cases set to soar over the coming months as a result of the reopening, the number of workers self-isolating is likely to surge higher also, forcing more business closures and putting even more strain on the economy.
Dialling Back BOE Tightening Expectations
While the market has recently been shifting towards expecting BOE tightening over the remainder of the year, these expectations are now being dialled back over fears that the UK economy will need extended support, particularly if fresh nationwide lockdowns are reintroduced in the Autumn, which the government has so far refused to rule out.
The breakdown below the 1.38 level and the rising trend line (H&S neckline) is gathering pace now. Price has broken below the 1.3676 level and with the MACD and RSI both bearish here there is room for a further push lower towards the 1.3461 level next.