GBP/USD Forecast: No Brexit option is not enough to support Sterling amid slowing activity

• The GBP/USD moved lower towards 1.2700 level even with No Brexit option admitted by UK Foreign Secretary.
• The UK Foreign Minister Hunt admitted a no Brexit possibility coming into the sight as Brexit deal impasse weighs.
• The UK manufacturing output fell -0.3% m/m in November after a revised decline of -0.6% m/m in the previous month
• The UK GDP rose 0.2% m/m in November, beating the market expectations.

The GBP/USD is trading little changed on the downside at around 1.2740, unable to sustain the mid 1.2700s level in the light of dovish Fed comments indicating data dependent and patient approach to further policy rates move. The UK manufacturing data disappointed in November indicating a drag on the overall economic growth in the UK in the final quarter of 2018 while the UK government official opened up Pandora’s box admitting a No Brexit deal is a possibility amid Brexit deal deadlock in the UK parliament.

The UK Foreign Minister Hunt said early on Friday that a No Brexit as a possibility as the UK parliament is opposing the Brexit deal arranged by Theresa May’s government. Hund said Brexit deal could be approved if the Irish backstop assurances are kept.

The European Commission’s President Jean Claude Juncker and the EU President Donald Tusk are reportedly sending letter official letter confirming assurances on Monday, January 14 in an attempt to help the Brexit deal pass through.

While the UK Labor party leader Jeremy Corbyn said he will call for the early elections should the Brexit deal approval fail to pass next week’s meaningful vote in parliament, the political chaos days before exiting the European Union is likely to weigh on Sterling. The UK parliamentary vote on Brexit deal is scheduled for Tuesday, January 15, with support for the deal falling short of approval.

Technically, the GBP/USD is trading in a downward sloping trend on a daily chart while capped by a trendline and oscillating around a 50-day moving average at 1.2770. The technical oscillators including Momentum and the Slow Stochastics turned lower with the GBP/USD pulling back towards1.2700 expected to generate a bearish crossover in the Overbought territory in Slow Stochastics. The Relative Strength index though still remains flat. The GBP/USD is expected to remain flat with Brexit deal defeat likely to weigh on the currency pair while markets temporarily discounted the drift in the US monetary policy outlook with US inflation later on Friday possibly adding to a cautious stance of policymakers at the Federal Reserve.  Brexit deal uncertainty is weighing on Sterling ahead of a Brexit deal vote with failure to pass the deal seen creating further chaos and fundamentally pressing on GBP/USD to fall further towards 1.2500-1.2440 level.

GBP/USD daily chart