GBP/USD bulls flushed out as US dollar soars

  • GBP/USD plummeted on Wednesday but bulls are moving in. 
  • US dollar rallies to fresh daily highs as US yields soar on Fed narrative. 

GBP/USD was sent packing all the way to the lowest levels since the end of 2020 with two-fold risk sentiment. These included soaring natural gas prices and petrol shortages in Britain due to Brexit Supply chain constraints as well as a global equity selloff on Tuesday.

A post-Brexit shortage of lorry drivers has sown chaos through British supply chains in everything from food to fuel, and the concern for emergency services is a critical point, especially given the Delta coronavirus crisis. Supply chain constraints exacerbated by Brexit means that UK consumers are facing surging food and energy bills at the same time that pandemic support measures are being unwound.

''Labour shortages and supply chains disruptions are currently common across the globe,'' analysts at Rabobank said. ''However, it is likely that Brexit is worsening these issues for the UK with price pressures also likely to be enhanced by extra regulations and paperwork that are now necessary on many goods traded between the UK and the EU.   This may be increasing the vulnerability of the pound.''

BoE backpeddles

Meanwhile, the Bank of England Governor Andrew Bailey said on Wednesday that he expected Britain’s economy to recover its pre-pandemic level of output early next year, a little later than the central bank had predicted last month.

''His new forecast reflects signs that Britain’s economic recovery has slowed by more than expected following its initial rebound from the last COVID-19 lockdown.

Complicating the outlook for the BoE, inflation is also surging, fuelled by widespread supply chain disruption including the panic-buying of petrol over the last week,'' Reuters reported. 

GBP/USD technical analysis

GBP/USD Price Analysis: Bullish M-formation argues test of 1.3610

''As illustrated above, the daily chart has formed an overextended M-formation and the bulls could be encouraged to restest the confluence of the 61.85 Fibonacci level and the 22 Sep lows.''

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