GBP/USD: Pullbacks to 1.29-1.30 amid faint UK government – Westpac

Firmer retail sales may provide support, but High Street lay-offs and slipping polls for PM Johnson’s Govt. are taking the froth off GBP after testing Jan highs near 1.33. Although the cable uptrend stays intact, economists at Westpac expect a pullback to the 1.29-1.30 zone.

Key quotes

“A humbling Govt. ‘U-Turn’ on education policy this week has highlighted public discontent with the Govt.’s handling of responses to COVID-19. YouGov opinion polls show that PM Johnson is now less popular than the new opposition Labour Leader Kier Starmer.” 

“UK/EU post-Brexit negotiations have restarted this week and the lack of progress is being highlighted by media as another example of Govt. inability to achieve its goals. It seems highly unlikely that any progress on the slew of issues to be addressed can be made this week just as GBP/USD has retested early 2020 highs in the 1.32-1.33 range.” 

“The flash August PMIs on Friday will be accompanied by retail sales and CBI trends surveys. If they fail to confirm or sustain their recent upswings the accompanying trend in GBP may also be further pressured in addition to the downturn in political support.” 

“GBP/USD uptrend remains intact but its recent sharp gains are also at risk of a period of consolidation and may see a pullback towards the 1.29-1.30 area before gains resume against a vulnerable USD.”