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Jul 07 - 01:55 PM

GBP/USD - COMMENT-Sterling Bounce After BoJo Exit May Be Transitory

By Paul Spirgel  —  Jul 07 - 12:10 PM

GBP/USD rose on Thursday following hawkish BoE comments and a sigh of relief in markets after Prime Minister Boris Johnson's resignation diminished some political uncertainty, but sterling still faces significant headwinds that make a test of recent lows the most likely outcome.

The pound rallied 0.63% versus the USD and 0.8% versus the euro in early NorAm trade, though it came off its sessions highs.

UK regime change could be sterling positive -- particularly versus the euro -- if it leads to reduced UK-EU trade tensions, though that may ultimately depend on who emerge as the top leadership contenders.

Cable weakness would be a trickier fix due to growth uncertainties hobbling BoE rate hikes, though comments from policymaker Catherine Mann -- who said the bank should closely watch how the pound's recent fall is feeding into the country's high inflation rate -- helped sterling.

Still, the pound must rise above 1.2141, the 50% Fibo of the June-July 1.2405-1.1877 range, to wrest control from bears.

Bearish targets include the March 26 2020 low of 1.1778, the March 25, 2020 low at 1.1640 and the March 20, 2020, COVID trough of 1.1413.

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Refinitiv IFR Research/Market Commentary


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