GBP/USD ends week lower but far from the bottom, life after May?

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  • Pound is the worst performer for the week among majors.
  • It recovered lost ground over the last 32 hours, moving off lows. 
  • A weaker US dollar contributes to the rebound in Cable. 

The GBP/USD pair is about to end a volatile week lower but significantly away from the lows. The move to the upside of the last sessions could signal some consolidation ahead and even an extension of the recovery but most analysts continue the see a bearish outlook. Still, the political and the Brexit drama continues to be a critical driver. 

The pair bottomed on Thursday at 1.2604, the lowest intraday level since January 3 and then started to recover boosted by a decline of the greenback. The weaker US Dollar has been the main driver of the move higher in GBP/USD. Near the end of the week, it is hovering around 1.2700 after hitting a 3-day high at 1.2730. Cable had on Friday the best performance in weeks after Theresa May’s resignation as UK PM and also following lower-than-expected US data. 

Analysts at Rabobank point out that on the assumption that a new PM is successful in enticing parliament to back a Withdrawal Agreement, Cable could trade in the 1.33 area. “Scope for additional upside is possible if the new leader is showing signs of being able to unify the deeply divided Tory Party. If the rifts remain, the market could be focussing on the prospects of a general election in the months ahead and this is likely to cast a shadow over any recovery in the pound.” In a no deal scenario, they see GBP/USD moving toward 1.10.

Regarding the US Dollar, the Durable goods orders was another report to add to the recent soft data. “The US-Sino trade war has intensified and resulted in more demand for safe-haven US bonds. Weak US PMIs and housing data further increased demand, and the benchmark 10-year yield eventually dropped to the lowest levels since December 2017. In turn, the fall of yields made the greenback less attractive and triggered a sell-off. Disappointing durable goods orders also weighed on the USD”, wrote Yohay Elam, analyst at FXStreet. 

In the UK, now all eyes are now on Boris Johnson, the most likely next PM. In the US, trade tensions and the bond market could continue to dominate the scenario. Data to be release includes GDP (second estimate) and Core PCE. 

 

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