GBP/USD: Recovery remains capped near 1.3960

Hits the lowest in five-weeks at 1.3918, as USD buying picks-up pace.
Brexit and geopolitical tensions add to the downside.

The GBP/USD pair is seen trying hard to recover ground above the midpoint of the 1.39 handle, but in vain, as the looming geopolitical tensions between the US and Iran weigh negatively on the risk currency GBP.

Earlier today, the Iranian President warned the US President Trump against leaving the nuclear deal or else face severe consequences. More so, the pound also remains undermined amid the re-emergence of the Brexit jitters, with the European Union (EU) officials claiming that the Irish border backstop is flawed.

However, the main catalysts behind the five-day declines in Cable is broad-based US dollar strength, as the greenback tracks the rally in Treasury yields, especially with the 10-years trading in the close vicinity of the 3 percent level.

From a broader perspective, BOE Governor Carney’s dovish comments combined with downbeat UK fundamentals remain a weight on the local currency while rising inflation expectations in the US continue to fuel the Treasury yields rally.

Meanwhile, markets showed little reaction to the UK’s net public sector borrowing data, as the focus now turns towards the CBI industrial orders and US datasets due later today for the next move.

GBP/USD levels to watch

Mario Blascak, PhD, Editor-in-Chief at FXStreet noted: “Technically the GBP/USD is moving within downward trending channel that saw the important support of 1.3970 being broken to the downside on Monday. The 1.3970 acted as a strong support level representing 23.6% Fibonacci retracement level of the long-term uptrend from 1.2700 to current cyclical high of 1.4377. With spot rate on GBP/USD at 1.3920 on Tuesday, the next level to watch is the round big figure of 1.3900 and next 1.3770, representing 38.2% Fibonacci retracement of above mention big move from 1.2700 to 1.4377.”

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