GBP/USD treads water around 1.2250 ahead of PMI data, UK by-elections

• GBP/USD remains sidelined after bouncing off intraday low, maintains weekly inaction.
• UK politics, Brexit woes exert downside pressure amid BOE’s reluctance for heavy rate hikes.
• US dollar’s struggle probe pair bears amid a lackluster session.
• UK by-elections’ results, preliminary readings of June’s PMIs and Powell’s testimony 2.0 will be crucial.

GBP/USD struggles to extend the bounce off intraday low near 1.2250-60 heading into Thursday’s London open. In doing so, the Cable pair portrays the market’s inaction amid mixed concerns and anxious mood.

Increasing pessimism around UK PM Boris Johnson’s political position seems to exert downside pressure as Conservative leadership is at the test on Thursday due to the by-polls in Wakefield, West Yorkshire, and Tiverton and Honiton in Devon. “The Conservatives are braced to lose two parliamentary by-elections, according to senior party strategists, in moves that could prompt a renewed backlash against Boris Johnson,” per the Financial Times (FT). Additionally, fears that the UK’s Brexit will weigh on the British workers and fishers keep the GBP/USD at the lower grounds.

Elsewhere, the Bank of England’s (BOE) refrain from heavier rate hikes also challenges the GBP/USD buyers. On Wednesday, the UK Consumer Price Index (CPI) matched 9.1% YoY market forecasts for May, above 9.0% prior, which in turn cites inflation pressure in the UK.

Additionally, the latest news from Reuters signaling an upbeat print of June’s jobs report from the US also keeps the GBP/USD prices in the chain.

On the contrary, the four-month low inflation expectations in the US and Fed Chair Jerome Powell’s Testimony in favor of the current monetary policy propel the GBP/USD prices. That said, the US inflation expectations, as per the 10-year breakeven inflation rate per the St. Louis Federal Reserve (FRED) data, dropped for the third consecutive day to the fresh low since late February, at 2.54%, by the end of Wednesday’s North American session. On the other hand, Fed’s Powell considered the present monetary policy bias appropriate to battle the inflation woes. It’s worth noting, however, that the Fed Boss’s readiness to use the aggressive measures, irrespective of their consequences, seemed to have put a floor under the greenback.

Against this backdrop, the US 10-year Treasury yields remain pressured around 3.15%, after falling the most in one week the previous day, whereas the US stock futures print mild losses by the press time.

Given the recent inaction in the markets and cautious mood, the GBP/USD may grind lower ahead of the preliminary readings of the UK/US PMIs and second rounds of Fed Chair Powell’s testimony. That said, UK S&P Global/CIPS Manufacturing PMI is likely to ease to 53.7 from 54.6 while the Services PMI could recede to 53.0 versus 53.4. It’s worth noting that the likely downbeat PMIs could weigh on the cable prices.

Also read: S&P Global US PMI June Preview: Waiting for recession

Technical analysis

GBP/USD dribbles inside a 100-pip area comprising an upward sloping support line from last Thursday and a 12-day-old resistance line, respectively near 1.2180 and 1.2280. It’s worth noting that the sluggish RSI (14) weighs on the pair prices.