GBP/USD Forecast: Sterling Boosted By Prospects Of Delayed Brexit After The Historical Defeat

• Theresa May's Brexit proposal got rejected at with 432-202 votes
• Opposition Labor party will trigger a no-confidence vote today with Theresa May seen winning the vote as Conservatives are unlikely to face early elections amid lack of public support.
• The Bank of England Governor Mark Carney is set to testify on financial stability before the Treasury Select Committee.
• The UK headline inflation decelerated to 2.1% over the year in December as oil prices weighed on the downside.

The GBP/USD is trading little changed on the upside approaching 1.2900 level ahead of UK parliament opposition Labor party challenging Prime Minister Theresa May in a no-confidence vote later on Wednesday. The Conservative party is expected to support Prime Minister and Theresa May is seen winning the vote as Tories are unlikely to favor early election at the times of polls indicating lower support for the party.

The GBP/USD dropped below 1.2700 level before the UK parliamentary vote on Brexit deal on Tuesday just to recover back to upper-mid 1.2800s after the deal was rejected in a crushing vote of 432-202 as markets saw increased chances of delayed Brexit. 

The Bank of England Governor Mark Carney is testifying before the Treasury Select Committee in the UK parliament on the Financial Stability Report on Wednesday saying market view of Brexit vote is most clearly expressed in the FX market. “Sterling rebound would appear to reflect some expectation that process of the resolution would be extended and the prospect of no deal had diminished,” Carney said in parliament.

Meanwhile, the UK inflation decelerated in December to 2.1% y/y, meeting the market estimates while core inflation stripping the consumer basket off food and energy prices accelerated slightly to 1.9% y/y. The UK macro data are overshadowed by Brexit development now, with little effect on the currency market.

The GBP/USD exhibited increased volatility on Tuesday as the UK parliament rejected the Brexit deal offered by Prime Minister Theresa May falling as low as 1.2695 before the vote just to recover back to upper-mid 1.2800s after the crushing defeat. The currency markets priced out the chances of disorderly Brexit with delayed Brexit prospects increasing in favor of a short-term push higher on Sterling. 

The technical oscillators remain elevated on a daily chart with Slow Stochastics set to make a bearish crossover within Overbought territory. Momentum and the Relative Strength Index are both skewing downward favoring the downside. While GBP/USD looks increasing overpriced after the recent volatility, the breakout from the long-term downtrend indicates a consolidation phase. The short-term targets remain 1.2940 on the upside while 1.2800 is the immediate target on the downside.

GBP/USD daily chart