GBP/USD is consolidating the recent recovery rally from two-month lows of 1.3424 as buyers started showing interest. A broadly weaker US dollar is the major reason for the buyer’s confidence.
However, A lack of progress on the Brexit front along with that the impending threat of the UK triggering Article 16 keeps the pound under pressure.
As per the recent brexit update, The UK is thought to be preparing to suspend parts of the Northern Ireland Protocol. Irish Foreign Minister Simon Coveney hinted the EU could terminate the Trade and Cooperation Agreement in response.
The Bank of England’s governor, Andrew Bailey, has stated in recent trade that the Old Lady will have to act with rates if there is evidence of higher inflation expectations feeding in to the wages. Bailey is essentially echoing his recent message about the direction of monetary policy which last week led to a jolt in financial markets.
“What we’re concerned about … is once you start to get an increase in inflation of this sort we want to stop it becoming generalised in the economy,” was said by Bailey during an online question-and-answer session organised by the BoE on Monday.
On the other hand the dollar weakness can be related to the inflation numbers loom. Price data, due from both China and the United States on Wednesday might test central bankers’ promises of patience. Economists are expecting the numbers to show profound pressure on factory gate prices in China, which can flow through global supply chains.
Inflation expectations had tugged real U.S. yields and the dollar a little lower overnight, put it remains within sight of highs hit on Friday.
In the present scenario, cautious market sentiment offsets Brexit risks which leds to the boding for the cable. The traders will focus now towards the speeches from Fed Chair Jerome Powell and BOE Governor Andrew Bailey for fresh hints on the monetary policy.
GBP/USD 4 Hour Chart:
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