GBP/USD drops towards 1.2450 with eyes on Fed, BOE and NI elections

• GBP/USD renews intraday low by staying inside the weekly range near two-year low.
• Brexit jitters renew ahead of NI elections as polls reject DUP victory.
• UK’s economic hardships can stop BOE but Fed’s moves are also priced-in, suggesting mixed play ahead of crucial events.

Following a second failure to break the weekly trading range, GBP/USD drops 0.20% during a lackluster Asian session on Wednesday.

The cable’s latest weakness could be linked to the US dollar’s recent pick-up, as well as negative headlines concerning Brexit and challenges for the Bank of England’s (BOE) hawkish move. Even so, the pair sellers remain cautious as the Fed’s expected hawkish actions seem mostly priced in.

Given the major opinion polls favoring Sinn Fein’s victory during the Northern Ireland (NI) victory, fears that the Democratic Unionist Party (DUP) will have to relinquish controls over the Brexit demand grew stronger. The same will add to Boris Johnson’s struggle to convince the European Union (EU) of UK-favored Brexit terms and weigh on the GBP/USD too. “Northern Ireland elections on Thursday could mark a major shift in the region’s sensitive political balance, and undermine Boris Johnson’s bid to redraw the terms of the U.K.’s split from the European Union,” said Bloomberg in this regard.

Elsewhere, fears that the UK will enter into recession should finance turn low battle the strong inflation to highlight the importance of the Bank of England’s (BOE) monetary policy verdict on Thursday. “The BoE may try to convince investors again that it will not raise rates as much as they expect. Rate futures are pricing Bank Rate hitting 2.25% by the end of this year with an outside chance of a 50 basis-point hike next week,” said Reuters.

On an immediate basis, markets are more interested in how the Fed tackles the inflation problem on hand. Though, a 0.50% rate hike and clues for balance-sheet normalization are mostly priced in and hence the Fed needs to do more to keep the USD bulls happy.

Read: Fed May Preview: 'Less hawkish' is the new dovish

Technical analysis

GBP/USD broke an ascending triangle to the south and favored bears on Tuesday. Also suggesting the quote’s further downsides are the bearish MACD signals and the pair’s sustained trading below 200-HMA, around 1.2635 by the press time.