GBP/USD steadies around 1.2500 as UK’s stimulus hopes battle political jitters

• GBP/USD licks its wounds after posting the first weekly loss in three.
• Tory rebels brace for holding vote of no-confidence in UK PM Johnson.
• UK PM Johnson may unveil housing plans to shift focus from partygate-linked dislike.
• US inflation, Brexit and China are additional catalysts to watch for clear directions.

GBP/USD picks up bids to consolidate the first weekly losses in three around 1.2500, bouncing off the 21-DMA, during early Monday morning in Europe. However, a lack of major catalysts and political fears at home restrict the pair’s immediate moves.

Although S&P 500 Futures gain half a percent to portray cautious optimism in the market around 4,130, the US 10-year Treasury yields fall 1.6 basis points (bps) to 2.94% and probe the optimists. Behind the moves are China-linked positive news and increasing market fears of the Fed’s aggression. At home, political pessimism surrounding UK PM Boris Johnson’s future and likely measures to tame British housing problems seem to trouble the GBP/USD traders.

“Boris Johnson’s key allies are preparing to defend him in a challenge to his leadership, as they conceded it was increasingly likely that rebel Conservative MPs had reached the key threshold needed to trigger a vote of no confidence in the UK prime minister this week,” said the Financial Times (FT) during the weekend.

The news also states that should Johnson avoid a vote in the coming days, the focus will switch to the results of two crucial by-elections on June 23. The rebels believe that losing both would make a no-confidence vote inevitable.

It’s worth noting that UK PM Johnson is up for a speech on housing, on Tuesday, which in turn may reveal plans to buy to housing association tenants, per the FT.

Elsewhere, Beijing’s readiness to ease the virus-led activity controls joins the US preparations for announcing tariff relief for China to underpin cautious optimism in the market.

“Dine-in service in Beijing will resume on Monday, except for the Fengtai district and some parts of the Changping district, the Beijing Daily said. Restaurants and bars have been restricted to takeaway since early May,” reports Reuters. On the other hand, US Commerce Secretary Gina Raimondo said, per Reuters, “President Joe Biden has asked his team to look at the option of lifting some tariffs on China that were put into place by former President Donald Trump, to combat the current high inflation.”

On a broader front, the increase in the odds of a third 50 bps rate hike from the Fed in September, to 75% from 35% appeared last week, seems to challenge the market players ahead of Friday’s US Consumer Price Index (CPI) for May.

While politics and the US CPI are the key catalysts for the week, headlines concerning China and Russia, as well as the Fed bets may entertain traders for now.

Technical analysis

Although 21-DMA restricts short-term GBP/USD downside to around 1.2465, the pair buyers remain cautious until the quote stays below a descending resistance line from late February.