GBP/USD turns negative as risk aversion returns

• US dollar strengthens again as Wall Street turns red again.
• GBP/USD heads for lowest daily close since June 2020.
• Data ahead: US inflation on Wednesday, UK Q1 GDP on Thursday.

The GBP/USD dropped to 1.2291 and printed a fresh daily low as the US dollar turned positive amid risk aversion. Stocks in Wall Street eared important gains as risk aversion prevails.

The Dow Jones is falling 0.74%, falling more than 500 points from the initial level and is headed toward the fourth decline in a row. The losing streak remains firm and supports the greenback even as US yields drop. The demand for safety continues to send yields lower. The US 10-year yield bottomed at 2.94% after hitting on Monday 3.20%. The DXY is up 0.10%, at 103.85.

 Cable remains near multi-year lows, under pressure. The outlook about the global economy continues to weigh on market sentiment across financial markets.

Fed speakers on Tuesday continue to be on the hawkish side. US inflation data is due on Wednesday. In the UK the key report of the week will be on Thursday with Q1 GDP.

Analysts at Brown Brother Harriman point out that Bank of England tightening expectations have stalled. “WIRP (World Interest Rate Probability) suggests another 25 bp hike is fully priced in for the next meeting June 16, while the odds of a 50 bp move then are minimal.  Looking ahead, the swaps market is pricing in 125-150 bp of total tightening over the next 12 months that would see the policy rate peak between 2.25-2.50%.  There are no other BOE speakers scheduled this week and given last week’s communications disaster, that might not be a bad thing”.

The GBP/USD is about to post the lowest close since June 2020 although it remains near the intraday cycle low. The outlook keeps pointing to the downside with the 1.2300 area offering support at the moment. A close above 1.2400 could alleviate the bearish pressure.

Technical levels