GBP/USD: UK government turmoil and Fed gloom picture confuses the cable

Criticism against UK PM Johnson and the Brexit deadlock weigh on the pound while USD benefits from the Fed's gloomy message, Yohay Elam, an analyst at FXStreet, briefs. 

Key quotes

“The UK's struggles with the disease mean the return to normal will be slower than expected, weighing on the economy and the currency. The PM's fall in support is unhelpful.”

“Sterling is struggling with deadlocked talks on future EU-UK relations. Michel Barnier, Chief EU Negotiator, has not relented in his criticism – saying Britain wants all the benefits of the bloc's membership without the obligations. Brussels refused to loosen Barnier's mandate, angering officials in London.”

“US Dollar strength is also weighing on GBP/USD. Markets initially cheered the Fed's commitment to keep interest rates low at least until 2022 and to normalize QE at the current rate of $4 billion per day or higher. However, while the Fed foresees the unemployment rate falling to single digits by year-end, a return to pre-pandemic output levels will likely take a couple of years. Jerome Powell, Chairman of the Federal Reserve, painted a gloomy picture of high uncertainty, eventually sending markets lower and boosting the greenback.”