GBP/USD keeps bounce off two-year low near 1.1950 despite political drama at Downing Street
- GBP/USD lacks momentum near the lowest levels since March 2020, pares the biggest daily loss in three weeks.
- British Health Secretary Sajid Javid, Finance Minister Rishi Sunak and Vice-Chair of Conservative Party Bim Afolami resigned.
- UK PM Johnson refrains from leaving; eyes on building a new cabinet. Recession fears also strengthen bearish bias.
- Risk catalysts will be important to watch; Fed Minutes, US ISM Services PMI and BOE speak to decorate the calendar.
GBP/USD surprises traders by paying little heed to the severe political plays at Downing Street after refreshing the two-year low on recession woes during Wednesday’s initial Asian session. That said, the Cable pair seesaws around 1.1960 by keeping the latest rebound from the 28-month low of 1.1898.
UK PM Boris Johnson had a tough Tuesday as senior members of his cabinet, as well as the Tory Party, resigned after he decided to keep former Conservative party whip Chris Pincher in his post after sexual misconduct allegations were made against him. However, the British leader regretted his decision and took steps, but it was too late. Even so, UK PM Johnson remained determined to keep his post and form the new cabinet.
Among the key resignations were British Health Secretary Sajid Javid, Finance Minister Rishi Sunak and Vice-Chair of Conservative Party Bim Afolami. It’s worth noting that multiple politicians are standing in the line to leave the boat as it appears to be sinking.
Elsewhere, the recession fears were in the talks and joined the firmer US Factory Orders for May, to 1.6% MoM versus 0.5% expected, to propel the US Dollar Index (DXY) to the highest levels in 20 years.
It’s worth noting that Germany’s energy crisis, Italy’s drought and the Bank of England’s grim economic outlook are the key catalysts that drowned the GBP/USD prices earlier, before the latest corrective pullback. On the same line could be hopes of ending the British pessimism after the dissolution of the current cabinet, which is more likely soon.
Against this backdrop, the equities dropped, before a mild recovery, whereas the US Treasury yields refreshed one-month low while inverting the yield curve between the two-year and 10-year coupons.
Given the popularity of the political plays in the UK, GBP/USD traders should pay attention to the political news for fresh impulse. Also important will be the Federal Open Market Committee (FOMC) Minutes and the US ISM Services PMI for June.
Technical analysis
GBP/USD rebound hinges on its ability to confirm the short-term falling wedge bullish chart pattern by crossing the 1.2200 hurdle. Until then, the quote is vulnerable to refreshing multi-month low under 1.2000.
Author
Anil Panchal
FXStreet
Anil Panchal has nearly 15 years of experience in tracking financial markets. With a keen interest in macroeconomics, Anil aptly tracks global news/updates and stays well-informed about the global financial moves and their implications.
