GBP/USD drops back towards 1.2550 as Brexit jitters renew, USD rebound

• GBP/USD reverses the recovery from three-week low, snaps two-day uptrend.
• Chatters over Brexit falsification grow stronger amid political chaos in the UK.
• US Treasury yields underpin greenback’s recovery moves ahead of US inflation.
• Sour sentiment can keep sellers hopeful amid a light calendar.

GBP/USD fades bounce off three-week low, renews intraday bottom around 1.2565, amid fresh fears concerning Brexit and global recession, as well as Fed’s faster/heavier rate hikes. In doing so, the cable pair snaps a two-day uptrend during the early Wednesday morning in Europe.

Although UK PM Boris Johnson managed to overcome the no-confidence vote, the political drama in Britain doesn’t stop. Recently, Brexit Party Leader Nigel Farage poured cold water on the face of the Labour Party’s expectations to benefit from Johnson’s political struggle by highlighting the fears of re-joining the European Union.

Elsewhere, China’s Vice Commerce Minister Wang Shouwen joined China’s Vice Finance Minister Zou Jiayi to renew fears of global economic slowdown, as well as fears of receding demand. The policymakers were recently in agreement over a belief that the global demand growth is slowing.

On the same line were comments from World Bank (WB) President David Malpass who warned that faster-than-expected tightening could push some countries into a debt crisis similar to the one seen in the 1980s seemed to have weighed on the quote of late.

It’s worth noting that US 10-year Treasury bond yields rise two basis points (bps) to 2.99% after snapping a six-day downtrend the previous day. A record slump in the US trade deficit and hopes of an upbeat US budget seemed to have recalled the US Treasury bond sellers. The US trade deficit for April marked the historical fall of 19.1% to USD87.1bn the previous day.

Additionally weighing the market sentiment and underpinning the GBP/USD downside is the risk-negative news from Ukraine. “Kyiv says it has not yet reached any agreement with Russia or Turkey to allow the safe passage of its grain ships in the Black Sea, injecting skepticism into a push by the U.N. to create a vital food corridor,” said Politico.

Amid these plays, the S&P 500 Futures print the first daily loss in three around 4,140 while the US Dollar Index (DXY) reverses the pullback from a fortnight high.

Moving on, a light calendar can keep GBP/USD traders troubled ahead of Thursday’s European Central Bank (ECB) meeting, as well as Friday’s US Consumer Price Index (CPI) for May.

Technical analysis

GBP/USD remains sidelined inside a week-long trading range between 1.2600 and 1.2480. However, the bulls have multiple hurdle to cross as compared to the bears and hence the downside bias gains major accolades.