Rather than being a result of any positive domestic UK fundamental developments (there are none to speak of), GBP/USD upside on Wednesday is largely a result of FX markets taking a more positive view of the geopolitical backdrop and selling USD. Indeed, the buck is down across the board and this has handed GBP/USD some respite, with the pair recently able to climb back to the north of the 1.3150 level for an on-the-day gain of around 0.5%. That’s a decent 0.8% recovery from earlier weekly lows in the 1.3050 region but still leaves the pair more than 1.0% below last week’s peaks near 1.3300.

Notably, cable continues to fail to emulate the recent gains seen in EUR/USD as it struggles to push above its 21-Day Moving Average, which currently resides near 1.3160. Failure to break higher towards 1.3200, a break above which would open the door to a retest of last week’s highs in the 1.3300 area, is likely to be taken as a bearish sign for GBP/USD moving forward. And these bearish technicals come against an equally bearish fundamental backdrop.

Still, the lack of UK calendar events means the focus will remain on US fundamentals and the aforementioned divergence to UK fundamentals. That suggests a drop back towards weekly lows and a potential test of annual lows in the 1.3000 area may well be on the cards, assuming that further geopolitical optimism doesn’t come back into FX markets.

Analysts have noted that, since the BoE’s dovish shift where it softened its tone on the need for further rate hikes and emphasized its growing concern about the health of the UK economy amid the coming cost-of-living squeeze, UK yields have flatlined.

GBPUSD To Resume Hike Towards D-EMA50

Mar 30 2022