GBP/USD consolidates around 1.3400 after printing fresh YTD lows in the 1.3360s

• GBP/USD is consolidating around 1.3400, just above year-to-date lows printed earlier in the session.
• Worse than expected UK GDP data did little to impact GBP amid subdued Thursday trading conditions due to Veteran’s Day.

Having briefly dipped to fresh year-to-date lows in the 1.3360s earlier in the session, GBP/USD is currently consolidating either side of the 1.3400 level. Trading conditions will likely be subdued on Thursday given the fact that US markets are partially closed in observance of Veteran’s Day (bond markets are closed, but future and equity markets are open).

That will give traders some respite after a hectic session on Thursday that saw the USD push higher across the board following a much hotter than expected Consumer Price Inflation report for the month of October. That report, and the subsequent surge in US bond yields/hawkish repricing of USD short-term interest rate markets, sent GBP/USD cratering from above 1.3500 to current levels more than 100 pips lower.

UK economic data out on Thursday morning did little to help GBP’s cause. The preliminary estimate of Q3 GDP growth was a tad weaker than expected at 1.3% QoQ, a sharp slowdown from the 5.5% QoQ growth rate in Q2. September Manufacturing and Industrial Production data was also soft.

Now that GBP/USD has broken to the south of key support in the form of the prior year-to-date lows in the 1.3415-25 region, bearish technicians will be marking out their next target levels. One such level could be the 38.2% Fibonacci retracement back from the 2021 highs (at around 1.4250) to the 2020 lows (at around 1.1420), which resides close to 1.3170.

Brexit

There has been more Brexit newsflow on Thursday, as talks between UK, EU and French officials over the issues of Northern Ireland and fishing access rumble on. UK PM Boris Johnson is set to meet French President Emmanuel Macron on Friday, reported UK press on Thursday, likely to discuss the latter issue. Meanwhile, UK press also reported on Thursday that the EU is willing to make an improved offer to the UK regarding border checks on goods moving across the Northern Ireland border. Whether this will be enough to prevent the UK from triggering Article 16 and escalating trade tensions with the EU remains to be seen.

CIBC thinks that a “slowing macro environment and relatively contained inflation expectations point towards a less aggressive rate cycle” from the BoE. The bank adds that “the risk of advancing UK/EU trade frictions also points towards increasing GBP headwinds into early 2022”, before concluding that “as a consequence, we have revised down our sterling outlook and forecast GBP/USD at 1.33 by year-end”.