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GBP/USD Slammed by Brexit Drama, Dollar-Yen Eyes Inflation Data

GBP/USD Slammed by Brexit Drama, Dollar-Yen Eyes Inflation Data

Rich Dvorak, Analyst

US DOLLAR OUTLOOK: GBP/USD SPIKES LOWER AMID LATEST BREXIT DEVELOPMENTS AS USD/JPY AWAITS INFLATION DATA DUE

  • US Dollar went on a wild ride during Thursday’s trading session as EUR/USD whipsawed
  • GBP/USD plunged amid fresh Brexit drama and USD/JPY changed little ahead of inflation data
  • The DXY Index finished in positive territory on balance as risk aversion boosted the Greenback

US Dollar bulls flexed their muscles on Thursday and steered USD price action higher on net after beginning the session notably in red territory. The DXY Index traded about 0.6% lower around the New York opening bell with US Dollar downside owed largely to EUR/USD jumping in response to a lack of ECB jawboning. As trading progressed, however, spot GBP/USD price action started to steal the spotlight.

GBP/USD PRICE CHART: DAILY TIME FRAME (02 MAR TO 10 SEP 2020)

GBP USD Price Chart US Dollar Outlook

The Pound-Dollar has traded defensively amid emergency Brexit talks and selling pressure accelerated quickly mid-session. GBP/USD moved sharply lower after headlines crossed the wires detailing how the EU is considering taking legal action against Prime Minister Boris Johnson and the UK over plans to renege on the Withdrawal Agreement.

The steep slide notched by GBP/USD over the last few days appears to have broken its positively-sloped trendline connecting the 19 March and 30 June swing lows. That said, there could be potential for the Pound Sterling and GBP/USD price action to stay subdued in light of mounting Brexit uncertainty. Rising risk aversion driven by Brexit and major stock indices spiraling lower likely weighed positively on the US Dollar broadly due to its posturing as a top safe-haven currency.

USD/JPY PRICE CHART: DAILY TIME FRAME (18 APR TO 10 SEP 2020)

USD JPY Price Chart US Dollar Outlook

USD/JPY price action traded mixed on balance as trader indecision formed a doji star on the daily candlestick chart. The Dollar-Yen continues to gravitate alongside its bearish 50-day moving average, but spot prices have notched a series of higher lows since the end of July. Correspondingly, USD/JPY has coiled into a triangle pattern of consolidation over the last several weeks.

Perhaps upcoming US inflation data due this Friday, 11 September at 13:30 GMT might catch FX traders by surprise if the actual figure differs materially from market forecast, which could spark a sizeable move in the Dollar-Yen. Theoretically speaking, a hotter-than-expected inflation print could weigh negatively on USD/JPY with benchmark interest rates likely anchored to zero for the foreseeable future.

-- Written by Rich Dvorak, Analyst for DailyFX.com

Connect with @RichDvorakFX on Twitter for real-time market insight

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