- GBP/USD bears attack 1.2700 mark following its U-turn from 1.2813.
- Brexit pessimism, US-China tussle and market’s consolidation during the post-FOMC period mainly weaken the pair.
- US Jobless Claims, UK GDP and risk factors are the key catalysts to watch.
GBP/USD drops to 1.2690, down 0.47%, while heading into the London open on Thursday. The Cable pair surged to the fresh high since March 12 the previous day, following the US dollar’s broad weakness due to the Fed meeting. However, the escalation of risk aversion and short-covering moves seem to have triggered the greenback’s pullback from the early-March low. Looking forward, a light calendar might keep second-tier US data and news headlines as immediate directives to follow ahead of Friday’s UK data dump.
US Federal Reserve kept the door open for unconventional monetary policy tools, like Yield Curve Control (YCC) while announcing a no rate change on Wednesday. The US central bank also cut economic forecasts and anticipated the rates to remain unchanged until 2022. The event dragged greenback to the lowest since March 10 after the release but failed to keep the US dollar Index (DXY) heavy afterward. Having said that, the greenback gauge against major currencies, DXY, marks 0.18% gains to 96.25 as we write.
Other than the retracement following the heavy fall, an increase in the risk-off sentiment, mainly due to the Sino-American tension and fears of the coronavirus (COVID-19) second wave, also favor the US currency.
On the other hand, fears of hard Brexit weigh on the British Pound. The European Union’s (EU) chief Brexit negotiator Michel Barnier flashed some stark warning to the UK while speaking at the European Economic and Social Committee. In addition to the EU diplomats signal to take back the British status as a regional financial hub, a leaked document also suggested that the European Parliament could veto any trade deal between the UK and the EU that fails to ensure fair competition and strong standards on the environment and workers’ rights.
Elsewhere, UK PM Boris Johnson announced some more relief in the lockdown restriction but refrained from speaking against China on Wednesday. Though, US diplomats have earlier told to stand by their allies to challenge Beijing if they threaten them. Moreover, the trade talks between the UK and Japan are going well with NIKKEI saying, “UK seeks swift Japan trade deal and TPP membership.”
Looking at the light calendar, traders might keep searching for Brexit, virus and the US-China headlines for fresh impetus. However, the US Jobless Claims and Producer Price Index (PPI) might offer additional hints ahead of Friday’s key UK data.
Technical analysis
A Doji candlestick formation on the GBP/USD pair’s 4-hour chart seems to drag the quote further down towards a one-week-old support line, currently near 1.2675. Alternatively, 1.2800 becomes the immediate upside barrier for the pair to cross, a break of which can escalate the north-run towards February month low near 1.2850.
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