GBP/USD eases below 1.2500 amid geopolitical risks, Brexit optimism

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  • Cable fails to sustain the upside on 1.2500 as geopolitical risks weigh.
  • USD Index drops despite Saudi oil attack-fuelled risk-off, as the focus stays on Fed.
  • Receding hard Brexit fears and Brexit deal optimism to keep losses capped.

Having failed several attempts to sustain near seven-week tops just ahead of the 1.25 handle, the GBP/USD pair is seen on a steady decline so far this Monday, with the risk-sentiment dented by the Middle-East tensions that weighed negatively on the higher-yielding GBP.

Focus on FOMC, BOE for fresh direction

The spot climbed to the highest levels in seven weeks last Friday at 1.2510, as Brexit optimism overshadowed upbeat US macro news-led surge in Treasury yields and the US dollar. The US Retail Sales, Michigan Preliminary Consumer Sentiment and Business Inventories surpassed expectations.

The pound benefited from receding fears of a hard Brexit following the reports that the European Union (EU) may grant another extension to the UK to prevent a no-deal Brexit. Further, the UK Telegraph reported an EU diplomat, as saying “the best meeting since the negotiations with Frost started but not yet the beginning of a solution. ” Meanwhile, the UK PM Johnson said that he is working to get a deal with the EU within weeks.

However, the latest leg down in the major can be mainly attributed to the risk-off flows, spurred by the attack on the Saudi Arabian oil facilities over the weekend. Yemen’s Houthi rebels have claimed the responsibility of the attacks. But the US administration believes its Iran’s hand behind the attacks, spilling over risk-aversion across Asia.

Also, markets look to take profits off the table after the recent upsurge and ahead of the key central banks’ policy decision due later this week. The Fed is widely expected to cut the interest rates this Wednesday while the Bank of England “(BoE) is unlikely to act for now. Coupled with the latest unemployment figures, the solid wage growth story will likely keep the BoE comfortable in keeping interest rates on hold until the path of Brexit becomes clearer”, Lee Sue Ann, Economist at UOB Group noted.

In the meantime, the risk trends amid geopolitical, trade and Brexit developments will continue to drive the pair, as the macro calendar remains light on Monday.

GBP/USD Technical levels to watch

 

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