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28 Jan 2020

GBP/USD drops to 1-week lows, inching closer to 1.30 mark

  • GBP/USD remained depressed for the fourth consecutive session on Tuesday.
  • BoE rate cut speculations, no-deal Brexit fears weighed on the British pound.
  • A modest USD uptick added to the selling bias ahead of the US macro releases.

The GBP/USD pair finally broke down of its Asian session consolidation phase and dropped to one-week lows, around the 1.3025 region in the last hour.

The pair extended its recent pullback from the 1.3170 region and remained depressed for the fourth consecutive session on Tuesday. Despite last week's positive UK macro data, the fact that the market is still pricing in over 50% chances of a BoE rate cut on Thursday was seen as one of the key factors undermining the British pound.

GBP/USD weighed down by a combination of factors

This coupled with fears of a no-deal Brexit exerted some additional pressure on the sterling. It is worth mentioning that market worries were further fueled by the EU chief Brexit negotiator Michel Barnier's warning on Monday, saying that there is still the risk of a cliff-edge Brexit at the end of 2020.

The pair was further pressurized by a modest US dollar uptick. As investors looked past Monday's surprise fall in the US new home sales data, a modest pickup in the US Treasury bond yields extended some support to the greenback and further contributed to the pair's weaker tone.

Apart from this, possibilities of some short-term trading stops being triggered on a sustained break below 50-day SMA support, around mid-1.3000s, seemed to have prompted some technical selling and further attributed to the pair's latest leg of a downfall during the early European session.

In the absence of any major market-moving economic data from the UK, the release of the US Durable Goods Orders data and the Conference Board's Consumer Confidence index might influence the USD price dynamics and produce some meaningful trading opportunities on Tuesday.

Technical levels to watch

 

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