- GBP/USD trades flat in the 1.3560 area, having failed an earlier attempt to push above 1.3600.
- Cable traders are in wait-and-see mode ahead of key US inflation data on Wednesday and UK GDP data on Tuesday.
It’s been a subdued session for GBP/USD, with the pair set to end the session flat in the 1.3560s, having swung between highs above 1.3600 to lows in the 1.3520s. The seemed to attract selling interest at the 1.3600 level, given that it also coincides nicely with last Tuesday’s low. But the selling momentum quickly waned, with FX market participants likely to keep their toes out of the water ahead of the two most important data releases of the week for cable; the US October Consumer Price Inflation report, set for release at 1330GMT on Wednesday, and the preliminary estimate of Q3 UK GDP growth, set for release at 0700GMT on Thursday.
Fed and BoE speakers have been on the wires today, but none added anything new to the policy debate and thus did not shift the dial for FX markets. There has been quite a lot of attention on a sharp drop in US yields, a move that has not been reciprocated in UK bond markets, though the move of US/UK rate differentials in GBP’s favour on Tuesday has not seemed to help GBP/USD. That could be because Brexit remained in the headlines on Tuesday. Essentially the EU is threatening countermeasures if the UK opts to trigger Article 16, which allows it to unilaterally suspend parts of the Northern Ireland Protocol. No-deal Brexit risk is back on the table.
Should Brexit risks materialise (i.e. the EU suspends large parts of the existing UK/EU trade deal in retaliation to the UK triggering article 16), GBP is likely to come under more severe pressure. In this case, a move lower towards annual lows in the low 1.3400s is on the cards. Indeed, technical momentum seems to point in this direction; Tuesday’s price action saw GBP/USD test and respect a downtrend that has been in play since the end of October, signaling continued downside in the pair is likely.
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