GBP/USD slips back under 1.3100 as sterling weakens in sympathy with euro post-ECB

• GBP/USD has dipped back under 1.3100 as it weakens in tandem with the euro post-dovish ECB policy announcement.
• The pair remains at risk of falling to sub-1.3000 levels amid the risk of more BoE/Fed policy divergence.

Though the currency hasn’t been weighed on as badly as its euro counterpart, the dovish lean to the ECB’s latest policy update has put a dampener on pound sterling, which has been weakening in sympathy in recent trade. GBP/USD, which nearly changed hands as high as the 1.3150 mark earlier in the day, has now reversed lower to the 1.3080 area where it now trades lower by about 0.3% on the day.

Again, the 21-Day Moving Average (currently at 1.3117) appears to have acted as a ceiling for cable. The pair has tried on multiple occasions in recent weeks but has been unable to muster a meaningful break above the 21-DMA since late February. Analysts continue to cite positive dollar fundamentals, including increasingly hawkish Fed policy rhetoric and the recent rise in US yields, as well as negative UK fundamentals, including the comparatively weaker economy and likely to be much more dovish BoE, as capping the pair’s upside.

This week’s US jobs, inflation and GDP data has only reinforced existing narratives about the UK economy; that the labour market is strong, but that consumers are being badly squeezed amid sky-high inflation, a big risk to growth going forward. Meanwhile, this week’s US inflation data has reinforced expectations for rapid monetary policy tightening from the Fed, which is keeping the dollar well supported. GBP/USD remains at risk of slumping under 1.3000.