- 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.
Note: All information on this page is subject to change. The use of this website constitutes acceptance of our user agreement. Please read our privacy policy and legal disclaimer. Opinions expressed at FXstreet.com are those of the individual authors and do not necessarily represent the opinion of FXstreet.com or its management. Risk Disclosure: Trading foreign exchange on margin carries a high level of risk, and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to invest in foreign exchange you should carefully consider your investment objectives, level of experience, and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with foreign exchange trading, and seek advice from an independent financial advisor if you have any doubts.
Recommended content
Editors’ Picks
EUR/USD stays near 1.0800 after upbeat US data
EUR/USD stays under modest bearish pressure and trades near 1.0800 in the American session on Thursday. The data from the US showed that the real GDP growth for the fourth quarter got revised higher to 3.4% from 3.2%, supporting the USD and weighing on the pair.
GBP/USD stays in daily range above 1.2600
GBP/USD fluctuates in a narrow channel above 1.2600 on Thursday. The better-than-expected Initial Jobless Claims data from the US and the upward revision to the Q4 GDP growth helps the USD stay resilient against its rivals and limits the pair's upside.
Gold pulls away from daily highs, holds above $2,200
Gold retreats from daily highs but holds comfortably above $2,200 in the American session on Thursday. The benchmark 10-year US Treasury bond yield stays above 4.2% after upbeat US data and makes it difficult for XAU/USD to preserve its bullish momentum.
XRP price falls to $0.60 support as Ripple ruling doesn’t help Coinbase lawsuit against SEC
XRP programmatic sales ruling by Judge Torres was completely rejected by another US Court that ruled in favor of the SEC in a lawsuit against Coinbase.
Portfolio rebalancing and reflation trades emerge into Q2
Yesterday’s price action pointed at a possible end-of-quarter portfolio rebalancing as the session saw the laggards of the quarter like Apple and Tesla gain, and the stars like Microsoft and Nvidia retreat.