GBP/USD has stabilized somewhat in the mid-1.2500s
Tuesday’s major underperformer pound sterling has seen some much-needed stabilization on Wednesday, with GBP/USD currently trading a little lower on the day near 1.2550, having dropped a staggering more than 3.5% over the last four sessions alone. Traders attributed the recent weakness to a combination of factoring, including last week’s ugly UK March Retail Sales figures which underscore the impact of the UK’s most severe cost-of-living squeeze in decades, evidence on Tuesday of higher-than-expected government borrowing, and a backdrop of risk-off flows amid fears about geopolitics, global growth weakness, and central bank tightening.
Some analysts have said that bearish sentiment in the pair might now be getting a little stretched in the run-up to next week’s BoE meeting. That could explain how GBP was able to shrug off Wednesday’s ugly UK CBI Distributive Trades survey data, which indicates a massive further downturn in retail spending this month after March’s already large decline. Some analysts argued that buying ahead of support at the key 1.2500 level could offer the pair some short-term respite. But most would agree that the prospect of a more meaningful rebound in GBP/USD remains remote. Sentiment towards the health of the UK economy seems only likely to worsen, meaning markets may continue to pare BoE tightening bets. Meanwhile, the prospect for a broader upturn in risk appetite (i.e. a rebound in global stocks) against the backdrop of still very elevated inflation and geopolitical tensions and a Fed keen to press ahead with policy tightening also looks limited.