GBP/USD stages modest recovery from daily lows, trades quietly above 1.31

  • GBP weakens against rivals on political turmoil in the UK.
  • GBP/USD drops back below critical 100-DMA.
  • US T-bond yields help the greenback remain resilient.

Despite the choppy trading action seen in most of the major pairs, the GBP/USD pair showed some volatility on Wednesday as it lost nearly 100 pips on political drama in the United Kingdom. After refreshing its daily low at 1.3085, the pair retraced a portion of its daily losses and was last seen trading at 1.3115, where it was still down 0.4% on the day.

Earlier in the day, news of British International Development Secretary Priti Patel having unauthorized meetings with Israeli officials weighed on the GBP.  "The news brings back to the fore concerns over the effectiveness of May’s leadership and whether it can sustain long enough to bring the Brexit negotiations to a conclusion,” Rabobank analysts explained in a recent report. The EUR/GBP pair gained nearly 60 pips in the aftermath of these developments, reflecting the broad-based GBP weakness.

The latest round of Brexit talks is going to start in Brussels on Thursday. Speaking on the LBC radio, BoE policymaker Ian McCafferty said that the Brexit negotiations, as well as other factors, were creating uncertainty over the economic outlook. Commenting on the monetary policy outlook, McCafferty said that if inflation were to pick up, the MPC would have to look at a range of factors when considering rates. With no macroeconomic data releases from the UK tomorrow, political headlines are set to impact the demand for the GBP.

Meanwhile, despite the concerns over the tax plan not passing through the Senate easily, the greenback was able to show resilience against its peers amid rising US T-bond yields. At the moment, the DXY is virtually unchanged on the day near the 94.80 mark while the 10-year T-bond yield is up 0.75% at 2.324%.

Technical outlook

With today's drop, the RSI indicator on the daily graph eased below the 30 mark, suggesting that sellers are looking to take control of the pair's price action. Moreover, the pair is looking to close the day below the 100-DMA, which could add to the technical pressure. On the downside, the immediate supports aligns at 1.3040 (Nov. 3 low) ahead of 1.3000 (psychological level) and 1.2910 (Sep. 5 low). On the flip side, resistances could be encountered at 1.3140 (100-DMA), 1.3215 (Oct. 30 high) and 1.3275 (50-DMA). 

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