• GBP/USD hit fresh near two-year lows on Friday in the 1.2160s, extending weekly losses to about 1.4%.
  • A strong buck, tailwinds from a weak euro, UK economic/BoE tightening outlook concerns and Brexit headlines have weighed this week.
  • The pair has dropped around 7.0% in four weeks from above 1.3000 and is eyeing a break under 1.2000.

GBP/USD looks set to end the week at two-year lows in the 1.2160s, falling a further 0.3% on Friday to take weekly losses to around 1.4%. That takes cable’s losses in the past four weeks to a staggering approximately 7.0%. The US dollar has been picking up across the board in the lead-up to the start of the US trading session.

GBP/USD has taken heavy pressure this week not just by the strong safe-haven US dollar – amid risk-off market conditions as markets continued to bet on aggressive Fed tightening – but also a combination of bearish factors emanating from the UK and Europe. Firstly, Brexit has been back in the headlines with the UK and EU still at loggerheads over the Irish/Northern Irish border.

The UK is threatening to scrap the post-Brexit arrangement (the Northern Ireland Protocol), but the EU is saying if they do that, they will scrap the entire post-Brexit trade deal they have with the UK. Traders have thus been upping political risk premia over the past few days and a resolution doesn’t appear likely any time soon.

Meanwhile, the euro came under severe pressure on Thursday amid a number of bearish geopolitical developments relating to relations and trade (particularly in energy with Russia). Long story short, Russia is angry that EU member nations Sweden and Finland want to join NATO, that the EU has sanctions on various European gas companies (to which they are now no longer sending gas) and that gas going through Ukraine is also facing disruption.

This has weighed heavily on the typically quite closely correlated British pound, though the pound also still has domestic economic woes to contend with. Data out on Thursday revealed a surprise contraction in UK GDP in March and comes off the back of an even uglier Retail Sales report for the same month, both of which reflect the economic bite of the worst cost-of-living crisis in the UK in decades.

Worries about UK economic weakness (many economists are forecasting a slip into recession this year) stoke worries that the BoE won’t be able to tighten policy much more. While a few BoE hawks are still pushing for more tightening, they may increasingly find themselves in a minority on the Monetary Policy Committee (MPC). The UK’s relatively weaker economic outlook and relatively more dovish outlook for central bank tightening versus the US thus has been a key reason for the decline these last four weeks, and will probably send the pair lower yet.

The next key level of support to the downside is the May 2020 lows in the 1.2050 area and, beyond that, it’s a clear run all the way lower to the 2020 lows in the mid-1.1400s. Calling a test of this level might be a bit premature (maybe the US economy will underperform in H2 this year, and USD weaken..?), but GBP/USD moving under 1.2000 looks very much on the cards in the not too distant future.

The key market events that GBP/USD traders will be watching next week will be the appearance of multiple BoE MPC members at a parliamentary hearing on Monday, followed by UK jobs data, US Retail Sales data and a speech from Fed Chair Jerome Powell on Tuesday. On Wednesday, UK April Consumer Price Inflation data is out, followed by UK April Retail Sales figures on Friday. Fed speak and a few more BoE speakers are scattered throughout the week.

GBP/Usd

Overview
Today last price 1.2181
Today Daily Change -0.0019
Today Daily Change % -0.16
Today daily open 1.22
 
Trends
Daily SMA20 1.2618
Daily SMA50 1.2915
Daily SMA100 1.3221
Daily SMA200 1.3405
 
Levels
Previous Daily High 1.2256
Previous Daily Low 1.2165
Previous Weekly High 1.2638
Previous Weekly Low 1.2276
Previous Monthly High 1.3167
Previous Monthly Low 1.2411
Daily Fibonacci 38.2% 1.22
Daily Fibonacci 61.8% 1.2221
Daily Pivot Point S1 1.2158
Daily Pivot Point S2 1.2116
Daily Pivot Point S3 1.2068
Daily Pivot Point R1 1.2249
Daily Pivot Point R2 1.2298
Daily Pivot Point R3 1.2339

 

 

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