- GBP/USD fails to extend the corrective pullback from weekly low, sidelined of late.
- Fears of Tories double defeat in by-elections join unimpressive UK data to weigh on prices.
- Fears of recession, BOE’s refrain from higher rates and Brexit woes are an extra burden to consider.
- Fed Chair Powell’s measured comments couldn’t propel USD, UK/US PMIs for June will be important catalysts.
GBP/USD treads water around 1.2265 during the early Asian session on Thursday, after failing to extend the recovery from a weekly low beyond 1.2315. The cable pair’s latest inaction could be the mixed plays, as well as cautious sentiment ahead of the preliminary PMIs for June month from the UK and the US.
Fears of Conservatives’ defeat in the UK’s by-elections appear the latest blow to UK PM Boris Johnson as he struggles to defend the leadership amid the partygate scandal. “The Conservatives are braced to lose two parliamentary by-elections, according to senior party strategists, in moves that could prompt a renewed backlash against Boris Johnson,” per the Financial Times (FT). The news mentioned polls on Thursday in Wakefield, West Yorkshire, and Tiverton and Honiton in Devon, in by-elections prompted by the resignations of Tory MPs.
Elsewhere, the UK Consumer Price Index (CPI) matched 9.1% YoY market forecasts for May, above 9.0% prior, which in turn exerted additional downside pressure on the GBP/USD prices. The reason is the data-driven push on the Bank of England (BOE) to accelerate the pace of rate hikes versus the policymakers’ reluctance to do so.
Furthermore, fears of a hard Brexit weighing on the UK economy, which is on the brink of recession, also challenged the cable pair’s previous rebound. On Wednesday, The Telegraph said that Jacob Rees-Mogg has unveiled a new website so that Britons can “countdown” the scrapping of the more than 2,000 EU laws still in force. It’s worth noting that the UK PM Johnson is under fresh criticism from UK fishers due to the Brexit tussles with the European Union.
On the contrary, Federal Reserve (Fed) Chairman Jerome Powell’s justification for the recent rate hike, the biggest since 1994, managed to gain acceptance, at least during the first round of the Testimony on the bi-annual Monetary Policy Report. However, Powell’s rejection of the need for a heavy rate increase seemed to exert downside pressure on the greenback afterward.
Elsewhere, Wall Street managed to pare the day-start losses but ended Wednesday with mild losses whereas the US 10-year Treasury yields marked the biggest daily fall in a week by ending the day at around 3.16%.
Moving on, the first readings of the UK and the US S&P Global PMIs for June will be crucial amid fears of recession and inflation. The UK S&P Global/CIPS Manufacturing PMI is likely to ease to 53.7 from 54.6 while the Services PMI could recede to 53.0 versus 53.4.
Given the expectations of softer numbers from Britain, coupled with the market’s anxiety and the latest political jitters in the UK, GBP/USD may remain pressured. Also likely to exert downside pressure on the cable pair are the upbeat expectations from the US data.
Technical analysis
Despite the latest inaction, GBP/USD managed to cross the two-week-old descending trend line, now support around 1.2245, which in turn suggest another attempt to cross the 21-day EMA hurdle, at 1.2355 by the press time.
