- GBP/USD has started to fluctuate in a narrow range.
- Investors eye political developments in the UK as PM Johnson loses support.
- US Dollar Index stays calm following Friday's rebound.
GBP/USD has begun to move sideways at the start of the new week with investors awaiting the next catalyst. Despite Friday's decline, the pair closed the fourth straight week in the positive territory and it's still up more than 100 pips in January.
The dollar's market valuation is likely to continue to impact GBP/USD in the short term. Stock and bond markets, however, will be closed on Monday in observance of the Martin Luther King Jr. Day holiday, suggesting that the pair is likely to extend its sideways grind.
On Friday, the benchmark 10-year US Treasury bond yield rose more than 4% after New York Fed President John Williams and San Francisco Fed President Mary Daly both warned of Omicron's impact on inflation. Although the US Dollar Index gained 0.3% and snapped a three-day losing streak on Friday, it seems to be struggling to preserve its recovery momentum.
Investors are keeping a close eye on political developments in the UK. According to several news outlets, the latest election polls show that British Prime Minister Boris Johnson has lost support over the "Partygate" scandal and his Conservative Party has fallen behind Sir Keir Starmer's Labour Party. It's still too early to say whether or not a snap election will be called in the UK but rising political tensions could make it difficult for the British pound to attract investors.
GBP/USD Technical Analysis
GBP/USD is trading near the lower limit of the ascending regression channel, which currently aligns at 1.3680, coming from December. In case this level turns into resistance, the pair could extend its correction toward 1.3660 (static level) before 1.3620 (50-period SMA on the four-hour chart) and 1.3600 (psychological level).
On the other hand, 1.3700 (20-period SMA, psychological level) forms the first technical hurdle before 1.3720 (middle line of the ascending channel) and 1.3750 (multi-month high set last week).
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