GBP/USD drops to test monthly lows under 1.2280 as pound slides across the board
- Cable about to test monthly lows, under pressure and near 1.2250.
- US dollar trims losses across the board, while pound slides further.
The GBP/USD peaked on European hours at 1.2376 but since then it has constantly been falling. Recently it reached at 1.2266 a fresh daily low, matching the monthly low (May 7). It is under pressure on the back of a weaker pound. EUR/GBP climbed to the highest in three weeks near 0.8850.
Nobody cares about US CPI
US data released on Tuesday showed the US CPI dropped to 0.3% (annual) in April, below expectations. It was the lowest reading since 2015. Market participants ignored the report. The same will likely happen on Wednesday with the PPI.
The greenback was unaffected by the report and it managed to recover ground during the American session. The DXY remains in negative territory but off lows.
GBP weakens on Brexit, risk aversion and BoE officials
Among majors, the pound is the worst performer on Tuesday. Chancellor Sunak announced that the furlough scheme will be extended until October as the coronavirus crisis continues. The impact on economic activity lead analysts to expect more easing from the Bank of England (BoE). Ben Broadbent, an MPC member, said more easing is possible. On Wednesday, Q1 GDP data from the UK will be released.
In the meantime, Brexit talks are underway. Analysts at TD Securities point out that it looks like Brexit is not quite finished as a bearish factor for sterling. They think that with the end-June deadline approaching, GBP could be in for a rough period ahead. “Our bearish sterling view is particularly concentrated over the next few months. Indeed, we think GBP is likely to have a better second half of 2020 once more visibility emerges on the UK/EU relationship and global growth prospects begin to stabilize. In keeping with our view for a softer USD over this period as well, we maintain our current forecast for GBPUSD to finish this year around 1.26.”
Technical levels
The GBP/USD is testing the May low around 1.2260, below the immediate support emerges at 1.2245 (April 21 low). On the upside, now 1.2300 should act as a resistance. The next obstacle is seen at 1.2375/80 (May 12 high).