- GBP/USD is moderate at 1.2350 in the run up to the release of US CPI data.
- The British pound has been resilient to increased negative Brexit newsflow and forecasts of a UK recession in the second half of 2022.
- Some say there is already a lot of bad news for the price, but political risk limits the potential for a rebound.
Despite the increasingly worrying tone of the Brexit news flow, with the EU threatening to revoke its trade deal with the UK if the latter unilaterally scraps the Northern Ireland Protocol (as it has been talking about this week), it is already despite a group of economic forecasters based in the United Kingdom. forecasting that the UK will be in a technical recession in the second half of this year, the GBP/USD continues to trade steadily at .2350 and within recent intraday ranges.
After the recent strong downward moves, there is a very bearish outlook on the UK economy (and thus the prospects for BoE monetary policy tightening), already taking place, limiting the scope of a further short-term decline for the pound. Meanwhile, moderate FX market trading ahead of key US consumer price inflation data shouldn’t be too surprising. Traders tend to refrain from making big bets ahead of big, potentially market-moving events.
US inflation data is expected to moderate compared to recent months and some say this could induce some profit-taking for the USD as traders pare back the excess of the Fed’s recent aggressive bets. That could offer the GBP/USD a modest short-term lift, perhaps back to 1.2450. But as the volume of political debates over the Northern Ireland protocol and the UK-EU post-Brexit trade deal increases, this could prevent sterling from making further substantial gains.
Technical levels
Source: Fx Street
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