GBP/USD recovers from 3-week lows, heads towards 1.2500

• GBP/USD fell to near three-week lows but has since recovered to approach 1.2500 as the 21 DMA offers support.
• Sterling was little affected after British Prime Minister Johnson survived (albeit weakened) a confidence vote.
• Conditions could remain quite limited ahead of key US CPI data on Friday.

The GBP/USD recovered from a brief dip to more than two-week lows on Tuesday, and in doing so remained above its 21-day moving average at 1.2470, although it failed to break above 1.2500 again. The pair last traded near 1.2490, down around 0.3% on the day, but still within recent intraday ranges. The recent weakness seems to be more related to the strength of the US dollar than to factors specific to the UK.

But that’s not to say there haven’t been a lot of political developments in the UK this week. On Monday, the UK Conservative Party held a confidence vote for Prime Minister Boris Johnson, allowing him to retain his position as party leader (and Prime Minister). However, amid a larger-than-expected rebellion from Conservative MPs against his leadership, political analysts said Johnson’s authority has taken a hit.

The pound’s reaction to the events was apathetic. At present, Johnson has no credible contender within the Conservative Party for his position as leader (or as alternate PM) and even if Johnson had been removed, the thinking is that any potential replacement would likely continue similar policies.

Forex strategists said issues of the weakening British economy and the Bank of England’s monetary policy outlook will continue to be the main drivers of sterling crosses. In this sense, a survey carried out on Tuesday showed that UK shoppers reduced their spending in May to the most since the beginning of 2021, when the country had just entered a strict lockdown to curb the spread of Covid-19.

The lack of statements from the Bank of England and any major data out of the UK in the coming days means that GBP/USD will likely draw more inspiration from the dollar side of the equation. The coming days are also quiet for the US economic calendar, with the Federal Reserve on edge ahead of next week’s meeting, with the main event being US consumer price inflation data. of Friday.

GBP/USD traders should prepare for the pair to remain (likely) in a range near the 1.2500 level and the 21 DMA in the coming days, provided there are no significant swings in market risk appetite by unpredictable fundamental events.

Technical levels