- GBP / USD found some support before 1.3700 and stopped its intraday decline.
- Rate hike expectations from the Bank of England and a weak USD helped to attract some buying on the lower dips.
- Brexit nervousness limited any further gains amid a break below the rising channel support.
The GBP / USD pair quickly rallied around 30-35 pips from daily lows and was last seen trading at modest losses, just below 1.3750.
The pair extended the previous day’s sharp retracement decline from the 1.3825-30 resistance zone and witnessed strong selling during the first half of trading action on Wednesday. The bearish trajectory dragged the GBP / USD pair to lows of more than a week during the middle of the European session, although it lacked subsequent selling.
The intraday rebound followed the optimistic economic assessment of UK Finance Minister Rishi Sunak when presenting the government’s annual budget. The Office of Budget Responsibility (OBR) forecasts that UK GDP will return to pre-crisis level by the end of the year and expand by 6.5% in 2021. OBR forecasts show GDP growth of 6% and 4% CPI in 2022.
This reinforced market expectations of an imminent rate hike from the Bank of England at the next policy meeting next week and extended some support to the British pound. This, coupled with the emergence of new selling around the US dollar, helped GBP / USD find decent support before 1.3700.
The USD came under pressure from an extension of the recent slide in US Treasury yields, which fell for the fourth day in a row. In fact, the yield on the 10-Year US Government Bond fell below 1.60% and undermined the dollar, which failed to gain traction following the release of durable goods orders.
Despite the supporting factors, the attempted recovery observed around the GBP / USD pair lacked bullish conviction amid new Brexit nerves. In the latest developments, the UK Prime Minister said on Wednesday that the conditions for invoking Article 16 had been met unless they see rapid progress on the Northern Ireland protocol.
Even from a technical perspective, the GBP / USD has broken through the support marked by the lower bound of an upward sloping channel extending from the September lows. The technical setup supports the prospects for further losses, suggesting that any further recovery could be seen as a selling opportunity.
Technical levels
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