GBP/USD: In bearish consolidation below 1.3700 amid escalating Brexit concerns

• GBP/USD off two-week lows, downside risks prevail below 1.3700.
• Brexit concerns escalate amid the UK-French fishing row, weighs on the pound.
• USD holds firmer amid hawkish Fed’s expectations, BOE likely to hint at rate hikes.

GBP/USD is under pressure below 1.3700, trying to find its feet after Friday’s severe blow. The bears retain control amid a broadly stronger US dollar and looming Brexit risks.

The US dollar index continues to hold the higher ground near two-week tops amid rising expectations of a sooner-than-expected Fed rate hike, as Friday’s PCE Price Index accelerated to 4.4% YoY in September vs. 4.2% previous.

The same is being reflected in the Treasury yields, with the benchmark 10-year rates up 1.50% so far. This week, markets have fully priced in that the Fed will announce a tapering of its bond-buying.

Brexit in focus

Meanwhile, growing Brexit concerns will continue to undermine the British currency amid an escalating row over fishing rights between the UK and France. Over the weekend, French President Emmanuel Macron said the row was “a test” of the UK’s “credibility”, in a Financial Times (FT) interview.

Separately, the head of the French ports of Calais and Boulogne, Jean-Marc Puissesseau warned, “It will be a drama, it will be a disaster.”

Maroš Šefčovič, Vice-President of the European Commission in charge of Interinstitutional Relations and Foresight, said, “he is concerned the (UK) Government will refuse to engage with (Northern Ireland) proposals put forward by Brussels.” 

Gear up for a big week, the pair will likely remain confined within a narrow, with all eyes on the Fed and BOE policy decision while Friday’s NFP release will also hog the limelight. In the meantime, traders will take cues from the UK Final Manufacturing PMI and the US ISM Manufacturing index.

GBP/USD: Technical levels to consider