- GBP/USD struggles to gain traction as it consolidates the biggest daily loss in three weeks.
- UK’s three key diplomats resigned after PM Johnson defended former Tory Party whip Chris Pincher.
- Labour Party’s five-point EU plan gains little acceptance over Brexit issue.
- Recession fears exert downside pressure ahead of FOMC Minutes, US ISM Services PMI.
GBP/USD grinds higher as it pares the biggest daily fall in nearly a month around the lowest levels since March 2020. That said, the Cable pair remains sidelined by portraying the gradual rebound to 1.1965, up 0.16% intraday during early Wednesday morning in Europe.
The quote’s latest moves could be linked to the market’s consolidation ahead of the key data/events, as well as UK PM Boris Johnson’s rejection to vacate the place and build a new cabinet. Also favouring the pair could be the Labour Party’s failure to please the British voters with its five-point EU plan.
Nadhim Zahawi becomes UK Chancellor and Steve Barclay is appointed as Health Secretary after the previous occupants, respectively Rishi Sunak and Sajid Javid resigned. Vice-Chair of Conservative Party Bim Afolami also left British politics. In addition to the partygate scandal, UK PM Johnson’s decision to keep ex-Conservative party whip Chris Pincher, despite sexual misconduct allegations against him, triggered the latest round of political drama in Downing Street.
Elsewhere, the UK Express conveyed Brexit woes for the Labour Party by saying, “Brexit-backing campaigners have slammed Sir Keir Starmer over his five-point plan to keep the United Kingdom out of the European Union just days after the Labour leader announced he would not drag Britain back into Brussels' single market and customs union.”
On a different page, pessimism surrounding the global supply chain amid the escalation in the Russia-Ukraine tussles joins fears of fresh covid-led lockdowns in China to amplify recession risks. The pessimism intensified after Germany and Italy flashed economic warnings while the Bank of England (BOE) also released a report conveying the grim economic outlook.
Furthermore, hawkish bets on the major central banks’ next moves and upbeat US data also propel the risk-off mood, which in turn underpin the US dollar’s safe-haven demand and weigh on the GBP/USD prices. On Tuesday, the US Factory Orders for May, to 1.6% MoM versus 0.5% expected and upwardly revised 0.7% previous readings.
Looking forward, final readings of the UK S&P Global Construction PMI for June may offer immediate direction but major attention will be given to British politics and the Federal Open Market Committee (FOMC) Minutes for clear directions. Also important will be the US ISM Services PMI for June, expected 54.5 versus 55.9 prior.
Also read: FOMC June Minutes Preview: Opportunity for dollar correction?
Technical analysis
A short-term falling wedge bullish chart pattern marks the GBP/USD pair’s rebound interesting. However, the cable pair needs to cross the 1.2200 hurdle to regain the buyer’s confidence. Meanwhile, the latest bottom surrounding 1.1900 stays on the bear’s radar.