GBP/USD refreshes monthly low under 1.3450 as Fed, Brexit and UK politics favor bears

• GBP/USD takes offers to renew monthly low, down for the second consecutive day.
• EU to sue UK over deal in bonkers, delay in Brexit talks over NI.
• Sue Grey's report awaited as UK PM Johnson defends drinks party, animal evacuation from Afghanistan adds to the problems.
• Fed matched hawkish market forecasts, US Q4 GDP awaited for better understanding.

GBP/USD extends the previous day’s losses amid broad US dollar gains post-Fed and worsening Brexit, as well as political, conditions in the UK. That said, the cable pair drops to 1.3430, down 0.20% intraday to refresh the daily lows heading into Thursday’s London open.

Starting with the Fed, the US Federal Reserve (Fed) matched wide market expectations to keep benchmark interest rates and tapering targets intact during Wednesday’s Federal Open Market Committee (FOMC) meeting. However, the interesting part from the Monetary Policy Statement was, “The Committee expects it will soon be appropriate to raise the target range for the federal funds rate.”

At home, UK PM Boris Johnson managed to take a sigh of relief on Wednesday, though for a short time, as the Sue Grey report was stopped from publishing. “Asked if Mr. Johnson would need to resign if he was interviewed under caution by police, he said: ‘No, of course, that wouldn't be a resigning matter, because people are innocent in this country until proved guilty,’” said the Sky News.

Elsewhere, The Sun mentioned that Brussels will sue Britain for a breach of the Brexit trade deal in a bonkers row about wind farms. On the same line was the escalating pressure on UK Brexit Minister Liz Truss to overcome the deadlock concerning the Northern Ireland (NI) protocol, recently by Democratic Unionist Party (DUP) leader Sir Jeffrey Donaldson.

It should be noted that the easing covid-linked activity restrictions and recently hawkish UK data offer a tough fight to the GBP/USD bears of late.

That said, the market’s risk-off mood underpins the US dollar demand. The same could be witnessed in firmer US Treasury yields and over 1.0% loss of the stock futures.

Moving on, the key report conveying the future of UK PM Johnson will be eyed to determine short-term GBP/USD moves. Also on the watcher’s list are the US Q4 GDP and Durable Goods Orders for December.

Read: US GDP Preview: Inflation component could steal the show, boost dollar, already buoyed by Russia

Technical analysis

A horizontal area from December 23 around 1.3435-30 may join oversold RSI conditions to trigger GBP/USD bounce. However, further downside past 1.3430 won’t hesitate to challenge 61.8% Fibonacci retracement of December 2021 to January 2022 upside, around 1.3385.