- GBP/USD falls back below 1.2550 but remains within familiar ranges as last week’s lows/21 DMA offer support.
- The survival of UK Prime Minister Johnson’s no-confidence motion has been a key talking point this week, but it hasn’t impacted sterling much.
- Currency markets are likely to remain dovish ahead of Friday’s US CPI.
The strength of the US dollar, amid rising government yields, has caused the GBP/USD pull back to the 1.2550 level on Wednesday where the pair is losing almost 0.3% on the day. However, the pair is still trading almost 1.0% above the multi-week lows it hit on Tuesday at the 1.2430 zone and is currently 0.5% higher on the week.
Support in the form of last week’s lows mid-1.2400 and the 21-day moving average at 1.2480 has supported GBP/USD so far this week and has kept the pair trading within recent ranges. Although UK politics have been the talk of the town, with Prime Minister Boris Johnson surviving a confidence vote from the Conservative Party on Monday, not much seems to have changed the pair’s tide.
Although he has maintained his position as party leader and Prime Minister, Johnson’s authority has been undermined by a larger-than-expected rebellion by his MPs. Some currency analysts have said this could be positive for the pound if recent events encourage the Prime Minister to bring forward tax cuts or increase fiscal stimulus, as this could modestly boost the weakening outlook for the UK economy. .
British households are facing the worst cost-of-living decline in more than a generation, with the government announcing in May that support for low-income households would be increased by more than £30bn this year. Further stimulus measures could encourage the Bank of England to revise up its pessimistic growth forecasts for this year and next, thus encouraging a little more monetary tightening.
Meanwhile, GBP/USD looks set to continue to oscillate between the 1.2450 and 1.2600 area as traders await the release of US consumer price inflation figures on Friday. If this data shows a further easing of US price pressures in May, this could lead to reduced Fed tightening bets and could help the pair test 1.2600 once again.
Technical levels
Source: Fx Street
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