GBP/USD recovers above mid-1.32s as confidence vote fears ease

• Political woes  drag the GBP/USD pair below the 1.32 mark on Monday.
• News of Conservative party members supporting PM May in her stance triggers a modest relief rally.
• US Dollar Index loses momentum before touching the 94 mark.  

The GBP/USD pair fluctuated wildly on Monday as investors continued to react to political developments in the U.K. After advancing to its highest level since June 14 at 1.3360, the pair came under a heavy selling pressure after British PM Theresa May’s office confirmed the resignation of Foreign Secretary Boris Johnson. Following a sharp drop to 1.3188, the pair retraced a portion of its daily losses and was last seen trading at 1.3255, where it was down 0.25% on the day.

Investors remained cautious as Johnson’s resignation heightened fears of Theresa May, who met with Conservative party members, facing a challenge in the parliament. Reports after the meeting clarified that there wouldn’t a confidence vote against May and allowed the GBP to erase some of its losses.

Nonetheless, political headlines from the UK are likely to continue to dominate the GBP valuation. In a recently published report, Fitch said that  Brexit plan formulated by the cabinet late last week would position the UK for a relatively soft exit from the EU, but it would face  significant challenges. “Resignations of David Davis, Boris Johnson highlight uncertainty over political cohesion, policy platform of UK govt “evident” since June 2017 election,” the report read.

Technical outlook

The initial resistance for the pair aligns at 1.3320 (50-DMA) ahead of 1.3445 (Jun. 14 low) and 1.3500 (psychological level). On the downside, supports could be seen at 1.3215 (20-DMA), 1.3150 (Jun. 19 low) and 1.3050 (Jun. 28 low).