GBP/USD hangs near two-week lows, just above 1.3900 mark ahead of US data

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  • GBP/USD witnessed heavy selling for the second straight session on Friday.
  • Strong follow-through USD buying was seen as a key factor exerting pressure.
  • The near-term bias might have already shifted in favour of bearish traders.

The GBP/USD pair has managed to recover a part of its intraday losses, albeit continued with its struggle to capitalize on the move beyond mid-1.3800s.

The pair witnessed some heavy selling for the second consecutive session on Friday and extended its sharp retracement slide from nearly three-year tops, around the 1.4243 touched earlier this week. The US dollar added to the previous day’s strong gains led by a sharp rise in the US Treasury bond yields and further benefitted from a softer risk tone around the equity markets.

Investors remain optimistic about a strong global economic recovery amid the progress in COVID-19 vaccinations and US President Joe Biden’s proposed $1.9 trillion pandemic relief package. The reflation trade forced investors to price in an uptick in inflation and pushed the yield on the benchmark 10-year US government bond beyond 1.50% for the first time since February 2020.

Meanwhile, the rout in the fixed income market fueled fears about distressed selling in other assets and triggered a fresh wave of the global risk aversion trade. This was evident from a sharp pullback in the equity markets, which further underpinned the greenback’s relative safe-haven status and dragged the GBP/USD pair below the 1.3900 mark during the first half of the European session.

That said, the British government’s plan to ease current lockdown measures and hopes for a swift UK economic recovery extended some support to the sterling. The GBP/USD pair showed some resilience below the 1.3900 mark, albeit lacked any meaningful traction. This, in turn, suggests that the positive outlook is fully priced in and the bias might have already shifted in favour of bearish traders.

Market participants now look forward to the US economic docket, featuring the releases of Core PCE Price Index, Personal Income/Spending data, Goods Trade Balance and Chicago PMI. This, along with the broader market risk sentiment and the US bond yields, will influence the USD and produce some trading opportunities around the GBP/USD pair.

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