GBP/USD capped in bearish territory on Brexit fears

  • GBP/USD capped by second ballot of Conservative party leadership race.
  • Technically, pair is developing below a firmly bearish 4HR 20 SMA.

GBP/USD has been capped on the latest developments of the Conservative party leadership race. GBP/USD pulled back on the result from 1.2560 to 1.2444. The outcome of the results has left Mr Johnsonin the lead which will weigh on the value of sterling as it will be suggesting that markets may have to price in a higher probability of a no-deal Brexit. 

The results:

  • Boris Johnson: 126
  • Jeremy Hunt: 46
  • Michael Gove: 41
  • Dominic Raab: 30 (eliminated) 
  • Sajid Javid: 33
  • Rory Stewart: 37

From here, those remaining in the race are taking part in a live BBC debate in central London and will face further ballots later this week in another knockout contest. Finally, beginning on 22 June, the final two candidates will be put to a postal vote of the 160,000 Tory party members and the winner expected to be announced about four weeks later. 

Elsewhere, the central banks will be the theme. The FOMC is to be expected to come with a dovish bias while the Bank of England may come with a hawkish surprise.

Look out for a hawkish surprise from the BoE

"Expect the BoE to continue talking up prospects of rate hikes," analysts at ING Bank stated.

"We expect policymakers to continue hinting that markets are underestimating the risk of further tightening. It's possible that the Bank says this more explicitly within either its statement or set of minutes (released simultaneously) this week, particularly given that market interest rate expectations have completely flattened since the May meeting. There is also an outside chance that one or two policymakers vote for an immediate 25bp rate hike at this meeting - Michael Saunders, in particular, has taken a hawkish stance in public recently."

GBP/USD levels

On a technical basis, Valeria Bednarik, Chief Analyst at FXStreet explained that the GBP/USD pair recovery remains as a mere correction according to technical readings: "Despite finishing the day with gains, it has posted a fourth consecutive lower low and lower high daily basis. Furthermore, and in the 4 hours chart, technical indicators have recovered from their lows but remain within negative levels, with the RSI having already lost upward strength at around 34. In this last timeframe, the pair is developing below a firmly bearish 20 SMA, currently around 1.2595which extends its decline below the larger ones."

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