GBP/USD licks its wounds near 1.2200, after refreshing a two-year low during the uninterrupted fall in the last six days, during the initial Asian session on Friday. In addition to the broad US dollar strength, pessimism surrounding Brexit and the UK’s economic fears are extra negatives that drowned the cable during the last few days.
The US Dollar Index (DXY) refreshed its 20-year high as traders rushed to the greenback in search of risk safety. Market’s fears were mainly propelled by the inflation woes that push global central bankers toward dialing back the easy money and challenging the already weary economic growth. Also challenging the sentiment are the negative impacts of the Russia-Ukraine crisis and China’s covid.
At home, Bank of England (BOE) Deputy Governor Dave Ramsden conveyed fears of prolonged higher inflation, which in turn raised worries for economic growth. The concerns become grim especially when the UK reports downbeat data.
That said, the UK’s first readings of the Q1 2022 GDP eased to 0.8% QoQ, below 1.0% forecasts while the monthly negative print of -0.1% for March, versus +0.1% expected and prior, gains major attention and drown the GBP/USD prices. Other than the UK GDP, Industrial Production and Manufacturing Production for March also disappoint the cable traders and add strength to the bearish bias.
It should be noted that British PM Boris Johnson’s likelihood of repealing part of the Brexit deal, relating to the Northern Ireland Protocol (NIP), joins the Western sanctions on Russia to exert additional downside pressure on the GBP/USD prices.
Amid these plays, Wall Street saw the red while the US Treasury yields renewed their weekly low to 2.85%, down 5.8 basis points (bps).
Looking forward, the preliminary readings of US Michigan Consumer Sentiment data for May, expected 64 versus 65.2 prior, will decorate the calendar but major attention will be given to headlines concerning risk-off mood, Brexit and inflation for clear directions.
Although oversold RSI teases a corrective pullback towards June 2020 low surrounding 1.2250, buyers aren’t likely to take risks unless witnessing a clear run-up beyond a three-week-old resistance line, around 1.2390 by the press time.
On the contrary, May 2020 bottom surrounding 1.2075 and the 2000 psychological magnet lure sellers.
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