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Brexit-Related Uncertainty Weighs on GBP/USD

Political developments added to the Brexit-related uncertainty and weighed on the GBP. Tempered Fed rate cut expectations underpinned the USD and exerted additional pressure.
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FXStreet is the leading independent portal dedicated to the Foreign Exchange (Forex) market and was founded in 2000. The website offers a wide range of tools and resources: 24/5 currency news, real-time economic calendar, advanced rates and charts, educational webinars, analysis reports, forecasts, Learning Center, newsletters, industry services, FX customizable studies… As its distinctive trademark, the portal has always been proud of its unyielding compromise to provide neutral and unbiased information and to enable its users to take better and more confident decisions. FXStreet has managed to gain the collaboration of the entire Forex industry, from individual professionals and small companies right up to Forex Brokers and Investment Banks. FXStreet covers the FX Market 24/5: an expert team of journalists, traders and economists picture what the market is doing and what is happening as it happens. Besides the main website in English, the portal is available in 16 other languages (English, Japanese, Simplified Chinese, Traditional Chinese, Spanish, Russian, Arabic, Turkish, Indonesian, Portuguese, German, French, Italian, Hungarian and Vietnamese, Korean and Catalan). FXStreet was short listed as “Best e-FX initiative of the year (vendor)” for the FX Week e-FX Awards 2010.

  • The UK political developments added to the Brexit-related uncertainty and weighed on the GBP.
  • Tempered Fed rate cut expectations underpinned the USD and exerted some additional pressure.

The GBP/USD pair failed to capitalize on an intraday uptick beyond the key 1.2500 psychological mark and met with some fresh supply during the early European session on Monday. The latest UK political development, wherein the UK Foreign Office Minister Alan Duncan resigned from his position, turned out to be one of the key factors weighing on the British Pound. This comes on the back of recent reports, suggesting some of the key Tory members – including the UK chancellor Philip Hammond, and ahead of the outcome of the UK Tory leadership contest on Tuesday – would work to stop the next Prime Minister from suspending Parliament in order to get a no-deal Brexit. This added to the recent pessimism and exerted some downward pressure.

The already weaker sentiment surrounding the Sterling deteriorated further after the UK think tank – NIESR said on Monday that there is a 25% chance that Brexit may have already pushed the economy into a technical recession. NIESR further added about the possibility of a severe economic downturn in the case of a disorderly, no-deal Brexit. Given that hardliner Boris Johnson remains the frontrunner to be the next British PM, the incoming headlines continued fueling speculations that the UK might crash out of the EU on October 31 and keep the GBP bulls on the defensive.

On the other hand, the US Dollar remained supported by the fact that investors continue to scale back their expectations for 50 bps rate cut move by the Fed at the upcoming policy meeting on July 30-31. It is worth recalling that the St. Louis Fed President James Bullard on Friday ruled out the possibilities of a larger rate cut and said that a 25 bps rate cut seems appropriate in the wake of the current US economic condition.

In absence of any major market-moving economic releases, either from the UK or the US, the incoming UK political/Brexit-related headlines might continue to influence the British Pound. This coupled with the USD price dynamics might further collaborate towards producing some short-term trading opportunities on the first day of a new week.

From a technical perspective, the pair’s inability to capitalize on the recent corrective bounce from 27-month lows and subsequent weakness suggest that the near-term bearish pressure might still be far from being over. Hence, a follow-through weakness, back towards challenging the 1.2400 round figure mark, now looks a distinct possibility. The bearish momentum could further get extended towards testing a support marked by the lower end of a near five-month-old descending trend-channel – currently near the 1.2340 region.

On the flip side, any meaningful recovery back above the 1.2500 handle might now confront some fresh supply near the 1.2545-50 region, which if cleared decisively might trigger a near-term short-covering bounce and lift the pair further beyond the 1.2600 handle towards testing its next major hurdle near the 1.2655-60 area.

Equities Contributor: FXStreet

Source: Equities News

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