GBP/USD: Recovery remains capped below 1.2000 on Downing Street drama

• GBP/USD bears looking to kill bulls’ recovery attempts on Thursday.
• UK PM Johnson is set to resign, political uncertainty heightens.
• The US dollar index recaptures 107.00 despite positive equities.

GBP/USD is preserving a major part of the intraday gains in the European session this Thursday, having found buyers once again near 1.1950.

Cable extended its recovery from 28-month lows of 1.1876 earlier in the day and almost tested the 1.2000 psychological mark before running into fresh offers. The pound was hit by news that UK Prime Minister Boris Johnson is set to announce his resignation. Johnson received another blow after Home Secretary Priti Patel joined the mutiny and demanded his resignation. Also, the newly appointed Finance Minister Nadhim Zahawi said that “PM Johnson Must Go.”

Also read: UK PM Johnson will reportedly announce his resignation

Uncertainty over who will be the next PM of the Kingdom heightened and weighed heavily on the sterling. Meanwhile, the US dollar index stalled its correction and found renewed demand amid looming recession fears and hawkish FOMC minutes, collaborating with the latest leg down in the major.

The UK political drama and broad dollar demand will likely keep the further upside elusive in GBP/USD. Investors look forward to the speeches from the Fed and BOE officials due later this Thursday. Cable, however, paid little heed to the latest BOE decision maker panel survey, which highlighted lofty inflation expectations, per Reuters.

Brexit concerns continue to dent the sentiment around GBP bulls, especially after European commissioner Maros Sefcovic told the European Parliament in Strasbourg, there is "no legal or political justification whatsoever" for Britain to change the Northern Ireland protocol that was part of its divorce agreement with the European Union (EU).

GBP/USD: Technical levels