GBP/USD consolidates losses below 1.3700 as DXY tests 91.00

• Pound retreats during the American session, eyes on COVID-19 and BoE.
• DXY at monthly highs near 91.00, Wall Street recovers.

The GBP/USD is trading near the daily low as the US Dollar gains momentum across the board during the American session. Cable is hovering around 1.3670, down 30 pips for the day. Earlier on Monday, it tested the recent top around the 1.3755/60 zone and then corrected lower.

The pound weakened over the last hours, turning negative versus the dollar and trimming gains versus the euro. No particular event triggered the correction of the pound. In the UK, attention continues to be on the vaccine progress and on what the Bank of England (BoE) could announce on Thursday.  “The most bullish potential outcome for the pound would be if the BoE leaves the key policy rate unchanged, and the consultation with lenders further dampens speculation over negative rates in the near-term. It could open the door to further GBP gains lifting cable closer to 1.4000,” explained MUFG Bank analysts.

The GBP/USD bottomed at 1.3655 and then rebounded, being unable to recover 1.3700. A stronger greenback keeps the pair under pressure. The DXY is about at the highest level in more than a month, at 90.99. Equity markets remain relatively steady on Monday, after having the worst week since October.  The Dow Jones is rising 230 points or 0.77% and the Nasdaq jumps 2.35%.

From a technical perspective, the GBP/USD trend remains bullish, but for the pound to clear the way to more gains, it needs to make a firm break of the 1.3750 area. On the flips side, the key support is the 20-day simple moving average, today at 1.3645. A daily close below would suggest a more significant correction ahead.

Technical levels