The GBP/USD plunged by nearly 200 pips on Tuesday, as risk aversion sent the US dollar to its highest level since June 1.
The GBP/USD bottomed out at 1.5422 in the European session. It would subsequently consolidate at 1.5436, declining 168 pips or 1.1%. The GBP/USD is trading at its lowest level in four weeks and is likely to find support at 1.5420, the low from June 11. A break below that level would expose 1.5366, the low from June 10. On the upside, the GBP/USD could face resistance at the daily high of 1.5609, followed by 1.5634, the high from July 6.
The GBP/USD was one of many US dollar pairs to suffer sharp losses on Tuesday, as the greenback made its first attempt at a bullish breakout this summer. The US dollar index, a trade-weighted average of the dollar against six currencies including the pound, climbed 0.9% to 97.14.
In economic data, the UK Office for National Statistics said manufacturing production declined unexpectedly in May. Manufacturing output fell 0.6% in May following a 0.4% drop the previous month. Analysts expected a slight rebound of 0.1%.
Compared to May 2014, manufacturing production was up 1%, well below forecasts of 1.8%.
Industrial production – a broader measure of factory output – rose 0.4% in May after climbing 0.3% the previous month. In annualized terms, industrial production rose 2.1%, official data showed.
Separately, the US trade deficit widened in June, as exports fell by the widest margin in three months. Exports declined $1.5 billion from April, reaching $188.6 billion. Imports were down $0.3 billion to $230.5 billion. The trade deficit increased by 2.9% to $41.9 billion.
The dollar was likely benefiting from broad safe haven demand, as the Greek bailout saga continues to unfold. The Greek government was expected to table a new bailout proposal on Tuesday after Prime Minister Alexis Tsipras spoke with German Chancellor Angela Merkel over the phone. However, according to European Union finance ministers, no proposal had been sent as of Tuesday afternoon.
Latvian politician and European Commission Vice President Valdis Dombrovskis was reported saying that a Grexit cannot be excluded. Maltese finance minister Edward Scicluna also said that the possibility of a Greek exit from the euro should be looked at seriously.
Greece defaulted on a €1.5 billion payment to the International Monetary Fund on June 30. The emboldened Syriza party is expected to continue fighting austerity after more than 61 percent of Greeks voted against accepting the troika’s bailout reforms in a national referendum on Sunday.
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