GBP/USD traders monitoring USD price action, eyes on Brexit themes too

• GBP/USD is in a recovery of the late March lows.
• All eyes on Brexit themes and risk flows in the USD. 

On a relatively quiet day for FX, GBP/USD is trading at 1.2430 within a tight range between 1.2359 and 1.2454, +0.56% at the time of writing at around 1.2430. Markets are leaning on the more optimistic side of things considering the talk of easing of isolation measures out in place to combat the spread of the lethal COVID-19 virus. 

• UK's FM Sunak: We should be in no doubt about seriousness of economic situation

With the Prime Minister of the UK, Boris Johnson returning to work at No.10, he is expected to announce plans for easing nationwide lockdowns as early as this week. However, on his return, it also raises the risks of a hard Brexit theme in sterling money markets as the debacle goes back to the fore following weeks of delay on both sides of the Channel pertaining to the virus.

"While investors are likely to be encouraged by any reports that suggest that the forthcoming post-Brexit talks are progressing well, they will also be mindful that the UK may still carry out the threat of walking away from the talks without a deal and opt to trade with the EU on WTO rules from next year," analysts at Rabobank argued.

"Given the weight of economic uncertainty see risk of GBP/USD dipping below 1.20 on a 3 month view though we have pencilled in a relief rally later in the year."

Meanwhile, we have GBP/USD in a recovery of the late March lows and as the US dollar tails off, the euro will likely drag GBP with it. However, the COVID-19 risk is fluid and likely to keep the USD in favour in an otherwise risk-off market place. Data will be another focus. Much of the bad data, however, is already priced in and the week ahead is rather light in terms of economic events, the highlight being the April PMI Manufacturing on Friday which will follow the poor March retail sales or April PMIs of last week. 

GBP/USD levels