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  • GBP/USD once again started retreating from the 1.3755-60 congestion zone.
  • A strong pickup in the USD demand was seen as a key factor exerting pressure.
  • The downside seems limited, warranting caution for aggressive bearish traders.

The GBP/USD pair extended its steady intraday retracement slide and dropped to fresh daily lows, around the 1.3675 region during the early North American session.

The pair struggled to capitalize on its early positive move and once again started retreating from the 1.3755-60 congestion zone, or multi-year tops. The pullback has now dragged the GBP/USD pair into the negative territory for the second consecutive session and was sponsored by a broad-based US dollar strength.

The greenback was back in demand amid doubts about the timing and size of the US President Joe Biden’s proposed COVID-19 relief package. In fact, ten Republican senators urged Biden to cut the $1.9 trillion price tag of the economic stimulus plan and reportedly floated a $600 billion alternative to garner bipartisan support.

On the other hand, the British pound lost some ground after British Prime Minister Boris Johnson said infections are still at a high level. Johnson, however, remains confident about having enough supplies to give people the second vaccine shot within 12 weeks and added that there are some signs of flattening in infection rates.

The GBP/USD pair retreated around 80-85 pips from daily highs, albeit the downside seems more likely to remain limited. Fading hopes for rapid approval of additional US economic stimulus was evident from the ongoing decline in the US Treasury bond yields. This, along with a strong rally in the equity markets, might cap gains for the safe-haven USD.

Apart from this, diminishing odds for any further BoE rate cut could further extend some support to the sterling and help limit any deeper losses for the GBP/USD pair. The UK money markets indicate that investors have pushed back bets for 10bps interest rate cut by the BoE to 2022 vs the previous expectations for such a move in December.

Market participants now look forward to the US economic docket, highlighting the release of ISM Manufacturing PMI, which might influence the USD price dynamics. Traders might further take cues from the broader market risk sentiment and the US stimulus headlines in order to grab some meaningful opportunities around the GBP/USD pair.

Technical levels to watch