GBP/USD regains 1.2300 despite Brexit woes, BOE’s Bailey, focus on UK jobs, US Retail Sales

• GBP/USD holds onto two-day rebound from multi-month low amid US dollar pullback, mild risk-on.
• UK PM Johnson is set for announcing plans to override parts of Northern Ireland protocol despite EU’s warning.
• BOE’s Bailey raised concerns about inflation, Fed’s Williams backs 50 bps rate hike.
• UK Jobs report, Brexit news eyed for immediate directions, US Retail Sales will be important afterward.

GBP/USD grinds higher past 1.2300, keeping the two-day recovery moves from the lowest levels since mid-2020, as cable traders await the UK’s jobs report, as well as key Brexit updates, for fresh impulse. That said, the quote stays firmer around 1.2330 by the press time of early Tuesday morning in Asia.

The Sterling had all it needed to begin the week’s trading on a negative side, which it did before printing a daily positive. However, a softer USD and broad risk-on mood played it all to help the pair consolidate the latest losses ahead of the key UK data and upbeat surrounding the Northern Ireland Protocol (NIP).

Starting with Brexit, UK PM Boris Johnson is all set to alter part of the NIP by citing it as an “insurance” in case of the European Union’s (EU) failure to respect other terms. Johnson’s move is in contrast to the bloc’s warning of cutting trade and will be observed closely. “Foreign Secretary Liz Truss will give a major statement on Tuesday - after the PM said in Northern Ireland: 'To have the insurance, we need to proceed with a legislative solution,’” said UK Mirror.

On the other hand, Bank of England (BOE) Governor Andrew Bailey testified before the House of Commons Treasury Committee amid allegations that the “Old Lady” stayed soft on inflation. During his speech, BOE’s Bailey revealed his “unhappiness” with inflation and warned of more suffering.

Elsewhere, a fall in the NY Empire State Manufacturing Index for May, expected +15.5 versus -11.6 actual, joined comments from New York Fed President John Williams to weigh on the US dollar. Fed’s Williams backed Chairman Jerome Powell’s 50 basis points (bps) rate hike idea by highlighting inflation as the main issue. It should be noted that the news suggesting the US extend covid public health emergency beyond July also allowed the US dollar to pare some gains.

Amid these plays, Wall Street benchmarks closed mixed and the US 10-year Treasury yields dropped to 2.88%, down 3.6 bps.

Looking forward, the UK’s Claimant Count for April is expected to improve from -46.9K to -38.8K whereas the ILO Unemployment Rate for three months to March may remain unchanged at 3.8%. The Average Earnings, however, could improve while excluding the bonus. Hence, the overall data is likely to help the GBP/USD prices to keep the latest rebound even as the qualitative catalysts are against the same.

Read: UK Jobs Preview: Why GBP/USD may offer an early selling opportunity, and when

Following the UK data, the US Retail Sales for April, expected at 0.7% versus 0.5% prior, will be important to watch amid ongoing concerns over inflation and consumer behavior.

Additionally, central bank speakers, Brexit updates and covid headlines are some other catalysts that can direct short-term GBP/UDS moves.

Technical analysis

GBP/USD recently confirmed a falling wedge bullish chart pattern with a clear break above 1.2300, suggesting further advances towards the monthly high surrounding 1.2640. The recovery moves also gain support from the MACD line’s impending bull cross and nearly oversold RSI.

Alternatively, a downside break of 1.2280 will negate the bullish breakout and can drag the quote back to the latest lows surrounding 1.2155.