GBP/USD retreats from 1.2500 amid Brexit, UK employment woes, US inflation eyed

• GBP/USD snaps two-day downtrend around weekly low, struggles to recover amid sluggish markets.
• UK PM Johnson failed to impress bulls, NIP chatters grow stronger on fears of a repeal.
• Private gauge for UK employment dropped for the sixth month in May.
• US CPI is widely anticipated to arrive strong and hence a softer figure can extend the latest recovery moves.

GBP/USD fades the corrective pullback from the weekly low, easing to 1.2495 during early Friday morning in Europe, as market fears and Brexit headlines challenge buyers ahead of the US inflation data. In addition to the Brexit woes and pre-CPI anxiety, lackluster trading session and poor signals concerning the UK’s employment situations also probe the Cable pair buyers of late.

“British employers added staff in May at the slowest pace since early 2021, according to a survey that adds to signs that the labor market is losing some of its heat,” said Reuters. The news cites a measure of permanent staff hiring, by accountants KPMG and the Recruitment and Employment Confederation (REC), to portray the recently downbeat employment conditions in the UK. That said, the private employment gauge fell for the sixth consecutive month to 59.2, 59.8 flashed in April but remained above the 50 threshold for growth.

On the other hand, UK PM Boris Johnson tried to regain the market’s confidence after successfully overcoming the no-confidence vote. However, traders remain skeptical over Britain’s economic conditions amid Brexit, covid and the Russia-Ukraine tussles.

It’s worth observing that UK PM Johnson’s readiness to unilaterally repeal the Brexit deal concerning the Northern Ireland Protocol (NIP) joins the bloc’s warning to levy harsh sanctions on the UK and cut trade ties to keep GBP/USD buyers on their toes.

Elsewhere, the fresh covid fears in China, due to the return of activity restrictions in Shanghai and Beijing, challenge market sentiment in Asia. “China's commercial hub of Shanghai faces an unexpected round of mass COVID-19 testing for most residents this weekend - just 10 days after a city-wide lockdown was lifted - unsettling residents and raising concerns about the impact on business,” said Reuters.

On a broader front, escalating fears of faster/heavier rate hikes and the negative economic repercussions of the same seem to weigh on the market’s performance of late. The growing concerns over hot inflation and the Russia-Ukraine tussles are some of the extra catalysts that test the GBP/USD buyers.

Looking forward, the US CPI, expected to remain static at around 8.5% YoY, will be important to watch as the White House has already signaled a higher number, which in turn could recall the GBP/USD buyers in case of a negative surprise.

Also read: US CPI Preview: Soft core set to drive dollar down, and two other scenarios

Technical analysis

GBP/USD trades below the 21-DMA for the first time since May 19, suggesting further downside towards six-week-old horizontal support near 1.2400.

Alternatively, recovery moves beyond the 21-DMA hurdle, around 1.2510 by the press time, needs validation from the 50-DMA level surrounding 1.2655 to convince buyers.