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  • GBP/USD continues to fall victim to broad strength in the US dollar and has recently slid back under 1.3700.
  • GBP is an underperformer in the G10 on Wednesday, perhaps due to soft CPI data.

The US dollar continues to grind higher and this is putting GBP/USD under pressure. The pair continues to trade within intra-day ranges but has recently dropped back below the 1.3700 level, with bears eyeing a potential test of session lows in the 1.3670s. The next key area of support to the downside is the early February 1.3565 level, so, technically speaking, there is plenty of room to run to the downside should USD continue to gain momentum. As things stand o the day, GBP/USD trades with losses of around 0.35% or close to 50 pips, making GBP one of the worst performing G10 currencies on what has otherwise been a fairly subdued day for FX markets.

GBP underperforms

As noted, on the day GBP is one of the worst-performing currencies in the G10 on the day. Near constant selling pressure since early Tuesday as GBP/USD broke to the south of key resistance in the form of its 50-day moving average is one factor. Indeed, GBP/USD failures on multiple occasions to break back above the 1.4000 level earlier on in the month might have encouraged some of the long-term GBP bulls to take some profit, which is likely exacerbating the sell-off.

In terms of fundamental developments, Wednesday morning’s very soft Consumer Price Inflation report for the month of February might be weighing. As a recap; headline CPI came in at 0.4% YoY (below expectations for 0.8% YoY) and at 0.1% MoM (below forecasts for 0.5% MoM). The Core CPI and RPI metrics were all also soft, but PPI output rose more than expected, jumping 0.6% on the month, versus forecasts for an increase of 0.3%. According to Capital Economics, the disappointing CPI report “displays the disinflationary effect from COVID-19 lockdowns, will delay the rebound to 2.0% and perhaps prompt the markets to reconsider their view that interest rates will rise next year”, though there has not really been much indication of any movements in money market pricing on Wednesday.

Elsewhere, whilst Wednesday UK PMI survey data was very strong, so was Eurozone and US PMIs – remember, currency markets are all about relativity, so for strong UK PMIs to benefit GBP versus the likes of USD and the euro, it would have had to have been significantly stronger/have beaten expectations by a significantly greater margin than the US and EU data.

Elsewhere, vaccine nationalism remains the greatest threat to the UK’s vaccine rollout, with supply from India and the EU under threat. However, the latest headlines on this front have been constructive; according to a joint statement, the EU and UK are working on specific steps they can take to create a win-win situation and expand vaccine supply for all citizens, with discussion on these steps set to continue.

Looking ahead, while the rest of Wednesday’s session is set to be quiet, GBP traders are on notice for remarks from Bank of England Governor Andrew Bailey on Thursday during the early European session. Meanwhile, of relevance to the USD side of the equation, Thursday brings another heavy slate of Fed speakers, including remarks from Fed Vice Chairman Richard Clarida (seen by many as the “brains” at the Fed). US President Joe Biden will also be giving remarks in which he is expected to give away more details on his administration’s plans for the infrastructure-focused “rescue” package.