GBP/USD renews 13-month lows, comes within a touching distance of 1.2700

No-deal Brexit fears continue to weigh on the pound.
UK unemployment falls to lowest level in more than four decades.
US Dollar Index advances to a fresh 2018 high above 96.70.

Eren Sengezer FXStreet

The GBP/USD pair extended its losses in the NA session and touched its lowest level since late June of 2017 at 1.2704. As of writing, the pair was trading at 1.2715, losing 55 pips, or 0.45%, on the day.

Earlier today, the data from the UK showed that the unemployment rate fell to its lowest level in 43 years at 4% in June from 4.2% in May. However, the sterling failed to take advantage of that data as the number of unemployed increased 6.2K in July to come in worse than the market expectation of 3.8K. In the meantime, British foreign Secretary Hunt said that the risk of a no-deal Brexit was increasing and added that everyone needed to be prepared for a chaotic atmosphere if that were to materialize.

On the other hand, the US Dollar Index, which looked like it was getting ready to make a downward correction on Tuesday, gained traction in the second half of the day and rose to its highest level of the year at 96.73, putting additional pressure on the pair.

On Wednesday, PPI and CPI data from the UK will be watched closely by the participants. Analysts expect the inflation to stay unchanged on a monthly basis in July. A decline in inflation might bring a new GBP selling wave as it would confirm the expectations of the BoE holding off on further rate hikes.

Technical outlook

With a decisive break below 1.2700 (daily low/psychological level), the pair could extend its losses toward 1.2640 (Jun. 12, 2017, low) and 1.2590 (Jun. 21, 2017, low). On the upside, resistances align at 1.2825 (daily high), 1.2910 (Aug. 9 high) and 1.3000 (psychological level).

Author

Eren Sengezer

FXStreet

As an economist at heart, Eren Sengezer specializes in the assessment of the short-term and long-term impacts of macroeconomic data, central bank policies and political developments on financial assets.

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