GBP/USD recovers from near three-week lows to near 1.2500 as 21DMA offers support

• GBP/USD fell to close to three-week lows, but has since recovered back closer to 1.2500 as the 21DMA offers support.
• Sterling was little impacted after UK PM Johnson survived (although weakened) a no-confidence vote.
• Conditions might remain quite rangebound ahead of Friday’s key US CPI data.

GBP/USD recovered from a brief dip to fresh more than two-week lows on Tuesday and, in doing so, held above its 21-Day Moving Average at 1.2470, though was unable to recover back above the 1.2500 mark. The pair was last trading near 1.2490, down about 0.3% on the day, but still within recent intra-day ranges. Recent weakness seems to have more to do with broad US dollar strength as opposed to any UK-specific factors.

But that’s not to say there hasn’t been plenty going on politically in the UK this week. The ruling UK Conservative Patry held a confidence vote in UK PM Boris Johnson on Monday that saw him retain his position as party leader (and PM). However, amid a larger than expected rebellion by Conservative MPs against his leadership, political analysts said that Johnson’s authority has taken a blow.

The pound’s reaction to the developments was apathetic. Johnson doesn’t at present have a credible contender within the Conservative Party for his position as leader (or as an alternative PM) and even if Johnson had been ousted, the thinking is that any potential replacement probably would continue with similar policies.

FX strategists said the themes of the UK’s (weakening) economy and the outlook for BoE monetary policy will remain key drivers of GBP crosses. On which note, a survey on Tuesday showed UK shoppers cut spending in May by the most since early 2021, when the country had just gone back into strict lockdown to stem the spread of Covid-19.

A lack of BoE speak and notable UK data in the coming days means GBP/USD will likely take its cue more from the dollar side of the equation. The next few days are also quiet for the US economic calendar with the Fed in blackout ahead of next week’s meeting, with the main event being Friday’s US Consumer Price Inflation data.

GBP/USD traders should prepare for the pair to (probably) remain fairly rangebound near the 1.2500 level and 21DMA in the next few days, provided there are no significant swings in the market’s appetite for risk on unforeseeable fundamental developments.