- GBP/USD is trading a bit weaker amid reduced trading due to the holidays and is eyeing a test of last week’s lows above 1.3000.
- The rhetoric from Bailey of the BoE and Powell of the Fed is likely to highlight a growing policy divergence between the BoE and the Fed.
Despite the absence of UK and continental European market participants due to public holidays due to the region’s Easter holiday celebrations, the GBP/USD has been trading with a downward bias on Monday amid continued USD strength. The pair is currently down 0.1% at 1.3035. Traders are citing the continued rise in US yields ahead of the American session opening as markets continue to price in a more aggressive response from the Fed to tackle runaway US inflation as support for the dollar on Monday.
Forex market flows should continue to increase in the coming hours as the American session opens. Intraday traders will watch if USD profit-taking allows GBP/USD to retest its 21-day moving average in the 1.3100 area, or if the pair extends modest morning losses to test recent lows.
UK political headlines related to UK Prime Minister Boris Johnson’s ‘party’ scandal are heating up due to his recent police fines for breaching lockdown rules and pressure on the PM to resign is increasing. Given the worsening cost of living crisis in the UK, Chancellor of the Exchequer Rishi Sunak, the man who used to be the favorite to replace Johnson as Prime Minister, has seen his approval rating plummet in the last weeks.
If Johnson resigns, therefore, there is less clarity about a possible successor Prime Minister. As a result, there could be some short-lived GBP volatility, and it is an issue worth monitoring. Otherwise, the broader themes of the Russo-Ukrainian war and central bank tightening will drive GBP/USD price action this week.
BoE Governor Andrew Bailey and Fed Chairman Jerome Powell will speak later in the week. His rhetoric is likely to highlight a growing divergence between the two banks, with the BoE likely to slow the pace of rate hikes in coming quarters amid concerns about economic weakness, while the Fed is likely to speed them up. Strategists continue to call for GBP/USD to break above 1.2050.
Technical levels
Source: Fx Street
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