GBP/USD recovers above 1.30 following the initial sell-off triggered by Brexit vote

• PM May’s Withdrawal deal gets rejected by a majority of 58 on Friday.
• US Dollar Index struggles to push higher after disappointing inflation data.
• UK GDP expands by 0.2% in Q4 as expected.

The GBP/USD pair came under heavy bearish pressure and slumped to its lowest level since March 11 at 1.2976 after the British Parliament voted down British Prime Minister Theresa May’s Withdrawal deal. However, with investors trying to understand what the next steps will be in the Brexit process and taking their profits off the table ahead of the weekend, the pair staged a rebound and was last seen trading at 1.3030, losing 0.1% on a daily basis.

Citing government source familiar with talks, Bloomberg recently reported that PM May was open to changing the Brexit political declaration and ask the EU for another short extension, reviving hopes of PM May trying, once again, to come up with a deal that will be supported by the majority of Parliament. On a similar note, the PM’s spokesman said that it was good to see some senior lawmakers changing their stance and vote for the deal despite the defeat.

Meanwhile, commenting on this development, Irish Prime Minister Leo Varadkar argued that the EU must consider granting a long extension if the UK were to fundamentally change its approach.

Earlier in the day, the UK’s Office for National Statistics reported that the real GDP expanded by 0.2% on a quarterly basis in the fourth quarter as expected and brought the annual growth rate up to 1.4% from 1.3%. Other data from the UK revealed that the total business investment contracted by 2.5% on a yearly basis in Q4 to better the analysts’ estimate of -3.7%. Nevertheless, the data failed to help the sterling gather strength ahead of the Brexit vote.

On the other hand, after today’s data from the U.S. showed that the Fed’s favourite inflation gauge, the annual core PCE price index, edged down to 1.8% in January, the greenback failed to preserve its bullish momentum and the US Dollar Index erased its daily gains to turn flat near 97.20, helping the pair extend its recovery.

Technical outlook by FXStreet analyst Yohay Elam

Cable is approaching the 1.3005 level where it had bounced twice in during March, a double bottom and a significant support line. Break or bounce? This is a critical question. 

Losing the line opens the door to 1.2960, another double-bottom and the lowest point in March. Further down, 1.2895 was a support line in February and 1.2830 capped GBP/USD when it traded on lower ground. 

1.3080 was a swing high earlier in the day and a swing low also earlier in the month. 1.3140 was a support line twice as well, while 1.3230 held the pair down several times. 1.3270 was the peak of the week.