GBP/USD drops back towards 1.3850 amid renewed Brexit jitters

• Brexit jitters, monetary policy divergence to keep the recovery short-lived.
• Eyes on UK PMIs, FOMC and NFP for the next direction.

The GBP/USD pair extends its Asian consolidative mode into early Europe, as the bears continue to guard the 1.3900 barrier amid resurgence of Brexit jitters heading into the European Union (EU) Chief Brexit Negotiator Barnier’s speech due today.

In his keynote speech today on the All-Island Civic Dialogue on Brexit, EU’s Barnier is likely to say that there will be no Brexit deal signed until Ireland is satisfied with border solution.

Meanwhile, the Northern Ireland’s DUP Leader Foster was reported by BBC News saying that Barnier "does not understand" the unionist position in Northern Ireland. Rising tensions over the UK-Irish border agreement is likely to keep the bearish grip intact over the pound.

Adding to the Brexit woes, the UK's Home Secretary, Amber Rudd, resigned, which could also accentuate sterling’s pain. Sterling to suffer further setbacks on Rudd's resignation?

The spot could also remain undermined, as the monetary policy divergence between the Fed and BOE is back in play, with the chances of a May BOE rate hike almost zero while a June Fed rate hike bets now advance to 92%. Further, downbeat UK fundamentals continue to add to the weight on Cable, especially after the UK’s Q1 GDP growth showed the slowest expansion in five years last Friday.

Later today, the pair will continue to track the USD price-action and risk trends amid a data-empty UK docket while all eyes remain on the US Core PCE price index and personal spending data for near-term trading opportunities.

GBP/USD levels to watch

FXStreet’s Analyst, Haresh Menghani writes: “Friday’s slump below 100-day SMA support, for the first time since mid-November, now seems to have paved way for an extension of the pair’s near-term downfall. The bearish bias would be confirmed once March lows support near the 1.3710 region is broken, below which the pair is likely to aim towards testing a one-year-old ascending trend-line support, currently near the 1.3600 handle.” 

“On the upside, any meaningful recovery attempt back above the 1.3800 handle could get extended but seems more likely to be capped at 100-day SMA support break-point, now turned resistance, near the 1.3870 region,” Haresh adds.