GBP/USD dribbles near two-year low, defends 1.2300 despite fresh Brexit jitters, UK PM Johnson eyed

• GBP/USD remains sidelined, pressured of late, after dropping to the lowest since June 2020.
• UK’s Truss prepares to drop the Northern Ireland protocol on failed talks with EU.
• Broad risk-off mood, light calendar add strength to the bearish bias.
• UK PM Johnson’s speech will be important to watch along with other qualitative catalysts.

GBP/USD remains on the back foot at around 1.2330, the lowest level since June 2020, despite the latest inaction ahead of the key speech from UK PM Boris Johnson on Tuesday. In doing so, the quote portrays the USD’s strength amid a risk-off mood but fails to respect the latest Brexit headlines suggesting further pessimism at home.

Having witnessed Sinn Fein’s victory in Northern Ireland’s (NI) elections, considered to be a major negative for Brexit as the party aims to rejoin the Irish nation with the old continent, UK Foreign Secretary Liz Truss gave up on Brexit talks with the European Union (EU). The British diplomat is also cited by The Times to brace for dumping a major part of the NI protocol. “Officials working for Truss have drawn up draft legislation that would unilaterally remove the need for all checks on goods being sent from Britain for use in Northern Ireland, the report added,” said Reuters.

Elsewhere, growing concerns over the economic growth, as rallying inflation pushes central bankers towards tighter monetary policies, seemed to have portrayed a stellar show of risk-aversion on Monday. Adding to the sour sentiment were worsening covid conditions in China and Russia’s ignorance of global ire over the invasion of Ukraine.

At home, Bank of England (BOE) external Monetary Policy Committee member Michael Saunders bolstered the rate-hike concerns by suggesting that a neutral rate might be in the 1.25%-2.5% range. The policymaker also added that the UK rates might need to go above neutral if inflation expectations go higher.

Against this backdrop, Wall Street saw the red but the US Treasury yields failed to cheer the risk-off mood, despite refreshing multi-day high earlier on Monday. Further, the US Dollar Index (DXY) rose to the highest in 20-year amid a flight to safety. That said, the S&P 500 Futures lick its wounds with 0.30% gains by the press time.

Moving on, UK PM Boris Johnson’s address to the House of Commons will be crucial to watch as the national leader will unveil Brexit benefits and may touch upon the latest difficulties in talks with the bloc. “The Prime Minister will tell MPs in a Commons debate on the speech that creating ‘high-wage, high-skilled jobs’ is the best way to solve the cost-of-living crisis, saying: ‘That is the long-term, sustainable solution to ease the burden on families and businesses,’” mentioned iNews.

Technical analysis

A bearish spinning top candlestick directs GBP/USD prices towards June 2020 low surrounding 1.2250 while capping the immediate recovery around 1.2410. Also acting as a nearby resistance is the fortnight-long descending trend line around 1.2515.