GBP/USD bounces off two-year low to 1.2000 on UK PM Johnson’s political, Brexit moves, Fed, BOE eyed

• GBP/USD picks up bids to consolidate recent losses at multi-month low, snaps five-day uptrend.
• UK PM Johnson's eyes to repeal corporate tax raid, tells cabinet to ‘de-escalate’ protocol stand-off with Brussels.
• US Dollar cheers risk-off mood, strong Treasury yields ahead of the Fed’s verdict.
• Markets anticipate big moves, making it a source of disappointment and anxiety ahead of the Fed.

GBP/USD prints a corrective pullback from a 27-month low as traders brace for the key Fed meeting during the early Asian session on Wednesday. In addition to the market’s consolidation, positive news from UK Prime Minister (PM) Boris Johnson also underpins the cable pair’s latest rebound.

“Boris Johnson wants to reverse Rishi Sunak’s planned multibillion-pound tax raid on business as he tries to firm up support on the Tory right in the aftermath of last week’s confidence vote,” said the UK Times.

News from the UK Telegraph saying, “Boris Johnson has told his Cabinet ministers to ‘de-escalate’ the war of words with Brussels over the Northern Ireland Protocol to avoid a trade war,” also should have helped the GBP/USD prices to rebound from a two-year low.

It’s worth noting that the downbeat UK data and concerns over the Bank of England’s (BOE) ability to tame the inflation without hurting the GDP seems to weigh on the GBP/USD prices.

On Tuesday, the UK’s employment numbers hint at the higher Unemployment Rate of 3.8% versus 3.6% expected for three months to April. Further, the Claimant Count Change improved to -19.7K from -49.4K expected and -65.5K prior

Elsewhere, the US Producer Price Index (PPI) matched 0.8% MoM forecasts for May, also easing to 10.8% YoY figures versus 10.9% expected and prior readouts. The PPI ex Food & Energy, known as Core PPI, dropped below 8.6% YoY forecasts to 8.3%.

Although the factory-gate inflation data eased, the fears of an aggressive Fed rate hike during today’s FOMC haven’t faded as the US 10-year Treasury yields refreshes the 11-year high to 3.497%, around 3.479% by the press time. With this, the Wall Street benchmarks witnessed another day of losses.

Moving on, GBP/USD may witness lackluster moves around the multi-month low as markets are likely to portray the pre-Fed anxiety.

Read: Federal Reserve Interest Rate Decision Preview: Damn the inflation, full speed ahead

Technical analysis

GBP/USD takes a U-turn from a six-month-old descending support line, around 1.1935 by the press time. Given the oversold RSI, as well as the likely USD retreat ahead of the Fed, the cable pair may witness a corrective pullback ahead of the key Federal Open Market Committee (FOMC).