GBP/USD turns negative as risk aversion returns

• The US dollar strengthens again as Wall Street turns negative again.
• GBP/USD is headed for the lowest daily close since June 2020.
• Data below: US inflation on Wednesday, UK Q1 GDP on Thursday.

The GBP/USD fell to 1.2291 and posted a new daily low as the US dollar turned positive amid risk aversion. Stocks on Wall Street made big gains as risk aversion prevails.

The Dow Jones is down 0.74%, falling more than 500 points from the initial level and heading for the fourth straight drop. The losing streak remains strong and supports the dollar even as US yields fall. The demand for security continues to push yields down. The 10-year US bond yield bottomed out at 2.94% after hitting 3.20% on Monday. DXY is up 0.10% at 103.85.

The pound remains near multi-year lows, under pressure. The outlook for the global economy continues to weigh on market sentiment in financial markets.

Fed speakers on Tuesday continue to be on the aggressive side. US inflation data is due out on Wednesday. In the UK, the key report of the week will be on Thursday with the first quarter GDP.

Analysts at Brown Brother Harriman note that Bank of England tightening expectations have stalled. “WIRP (World Interest Rate Probability) suggests that another 25bp hike is fully priced in for the next meeting on June 16, while the odds of a 50bp move are slim. Looking ahead, the swap market is pricing in 125-150bps of total adjustment over the next 12 months, which would see the benchmark rate peak at 2.25%-2.50%. There are no other BOE speakers scheduled this week and given last week’s communications disaster, that might not be a bad thing.”

GBP/USD is about to post the lowest close since June 2020, although it remains near the intraday cycle low. The outlook remains on the downside with the 1.2300 area offering support at the moment. A close above 1.2400 could relieve bearish pressure.

Technical levels