• GBP/USD is currently going sideways in the low-1.2300s as traders monitor Fed speak and Brexit news.
• For now, dollar consolidation is keeping the pair above 1.2300, but fears the UK might scrap the NIP are weighing.

Amid a broadly mixed and indecisive feel to risk appetite, GBP/USD is moving sideways in the low 1.2300s having, for now, found decent support above the 1.2300 and recent lows in the mid-1.2200s. But the pair has also been unable to mount a test of resistance in the 1.2400 area, as negative themes such as worries about the economy and now also growing fears about new Brexit-related tensions keep sterling suppressed.

Regarding the former, concerns about the outlook for the UK economy and BoE monetary tightening with the UK enduring its worst cost-of-living crisis in decades sent GBP/USD tumbling below 1.3000 back in late/mid-May. Last week’s dovish BoE meeting, which signaled a high risk of a recession in 2023 and inflation falling back under the bank’s target range towards the end of its forecast, exacerbated the losses and saw GBP/USD falling into the 1.2200s at the end of last week.

Whilst a pullback in US yields from recent highs as Fed policymakers push back against the idea of 75 bps rate hikes is helping the US dollar stabilise in the run-up to Wednesday’s US Consumer Price Inflation data release, GBP/USD upside is limited for now. Brexit risk premia is growing amid reports that the UK is on the verge of scrapping the Northern Ireland Protocol (NIP) given post-regional election political impasse in Northern Ireland.

If the UK did this, it would raise tensions with the EU and likely lead to some sort of response. Uncertainty about the whole issue is likely to, for now, cap GBP upside. Ahead, a barrage of Fed speak and any Brexit news will be the main market drivers of the day, with influential FOMC member John Williams already having spoken (and stuck to Chairman Jerome Powell’s script).