GBP/USD: Brexit, UK tax concerns probe bulls above 1.2350, PMIs eyed

• GBP/USD clings to mild gains after reversing from 7.5-month high the previous day.
• UKICE reports no likely change to Brexit terms despite UK’s latest hardships.
• Concerns surrounding UK’s tax cuts in upcoming budget, tax probe on Conservative leader also probe Cable buyers.
• Preliminary readings of UK/US PMIs for January, BOE’s Pham eyed for fresh impulse.

GBP/USD grinds near 1.2380-85 as bulls flex muscles ahead of the key UK activity data heading into Tuesday’s London open. Even so, looming concerns over the Brexit and the UK tax, as well as sluggish markets, challenge the Cable pair buyers as of late.

That said, a report from the academic body UK In a Changing Europe (UKICE) unveiled on Tuesday that despite a significant economic hit to Britain from leaving the bloc and falling support for Brexit among the British public, major changes in the UK-EU relationship were unlikely. The news shared by Reuters also signaled no efforts by either the European Union (EU) of the UK to reassess the Trade and Cooperation Agreement (TCA) signed in December 2020, which in turn hints at further deadlock in the key issue and challenges for the GBP/USD pair.

On the other hand, the UK Prime Minister Rishi Sunak needed to push independent ethics adviser to a tax case involving Chairman of Conservative Party as Nadhim Zahawi was marked irregular in filings. Additionally, the chatters surrounding the Britain’s readiness to propose carbon border tax as part of steel industry aid package, per the Financial Times (FT), also seem to challenge the GBP/USD buyers. Furthermore, the mixed plays of Conservative push for tax cuts and the British support in contrast also highlight taxes as the key challenge for the UK government of late.

Elsewhere, the US Dollar Index remains sluggish amid an absence of Fed talks and China holidays. On the same line could be the recent struggles between the US and China surrounding the US confrontation with China over companies’ ties to the Russian war effort and the US debt ceiling in the Senate seemed to have probed the GBP/USD pair’s upside momentum.

Against this backdrop, the S&P 500 Futures resist following Wall Street’s gains while retreating from the six-week high marked the previous day, making rounds to 4,030-35 at the latest. On the same line, the US 10-year and two-year Treasury bond yields snap three-day recovery moves by struggling around 3.51% and 4.21% by the press time.

Moving on, GBP/USD may witness a pullback amid a cautious mood ahead of the first readings of January’s S&P Global PMIs and the fourth-quarter (Q4) Gross Domestic Product (GDP) for the US. Also important will be a speech from Bank of England (BOE) member Caroline D. Pham.

Technical analysis

Although multiple hurdles around the 1.2450 challenge the GBP/USD bulls, the bearish bias remains off the table unless the quote stays beyond an upward-sloping support line from October 12, 2022, close to 1.2015 by the press time.