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GBP/USD inches higher toward 1.27 handle as DXY extends slide

  • BoE left policy rate unchanged at 0.75%.
  • Retail sales in the UK rebound in November.
  • US Dollar Index falls below 96.50 in the NA session.

After advancing to da daily high above 1.27, the GBP/USD lost its traction in the early NA session and turned flat on the day a little above the 1.26 mark. However, with the dollar coming under a renewed selling pressure in the last hours, the pair reversed its course and was last seen trading at 1.2692, adding 0.65% on a daily basis.

Earlier today, the data published by the UK's Office for National Statistics showed that retails sales in November rose 1.4% following October's 0.4% decline. However, the market reaction to the upbeat stayed relatively muted as investors stayed on the sidelines ahead of the BoE announcements.

Following its December meeting, the BoE, as expected, decided to keep its policy rate unchanged at 0.75%. Although the bank acknowledged that the Brexit uncertainties have intensified since their last meeting, it didn't say anything surprising regarding a possible policy action. "The monetary policy response to Brexit, whatever form it takes, will not be automatic and could be in either direction," the BoE repeated in its statement.

Reviewing this event, "In our view, the muted market reaction illustrates that it is all about Brexit at the moment whereas the Bank of England and the real economy only play a minor part and will continue to do so in the coming months," Nordea Markets analyst Morten Lund said.

On the other hand, the US Dollar Index, which came under pressure amid concerns over yield-curve inversion, struggled to make a meaningful recovery in the second half of the day and was last seen moving at its monthly lows near 96.28, losing 0.7% on a daily basis.

Technical levels to consider

The pair could face the first support at 1.2705 (Dec. 18 high/daily high) ahead of 1.2760 (Dec. 10 high) and 1.2800 (50-DMA). On the downside, supports are located at 1.2615 (daily low), 1.2560 (Dec. 17 low) and 1.2475 (Dec. 12 low/2018 low).

FTSE 100 closed 48 points or 0.7% down to 6,717.93

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