- GBP/USD has modestly stabilized at the 1.2550 area after losing more than 3.5% in the last four sessions.
- Traders have attributed a weakening of the UK economic outlook, the subsequent easing of the BoE’s tighter bets and broader flows of risk aversion as a factor.
- In this context, the prospect of a significant rebound seems slim in the short term.
Sterling, which underperformed on Tuesday, saw some much-needed stabilization on Wednesday, with the GBP/USD currently trading a bit lower on the day near 1.2550, having dropped a staggering over 3.5% in the last four sessions. Traders attributed the recent weakness to a combination of factors, including last week’s ugly UK March retail sales figures that underscore the impact of the UK’s most severe cost of living contraction in decades, evidence Tuesday of higher-than-expected government borrowing and a backdrop of risk-off inflows amid fears over geopolitics, weak global growth and central bank tightening.
Some analysts have said that bearish sentiment in the pair could now stretch a bit in the run up to next week’s BoE meeting. That could explain how the GBP was able to ignore the ugly UK CBI Retail Trades survey data on Wednesday, which indicates a massive drop in retail spending this month after the already big drop in March. Some analysts argued that buying ahead of support at the key 1.2500 level could offer the pair some short-term breathing space.
But most would agree that the prospect of a more significant rally in GBP/USD remains remote. Sentiment towards the health of the UK economy seems likely to worsen, meaning markets may continue to reduce BoE tightening bets. Meanwhile, the prospect of a broader rise in risk appetite (i.e. a rally in global equities) in the context of still very high inflation and geopolitical tensions and a Fed willing to go ahead with tightening politics also seems limited.
Technical levels
Source: Fx Street
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