- GBP/USD faced rejection near the 1.4000 mark and trimmed a part of its intraday gains.
- A sudden pickup in the USD demand was seen as a key factor exerting some pressure.
- An optimistic UK economic outlook extended some support and helped limit the downside.
The GBP/USD pair retreated around 60-70 pips from session tops, albeit has still managed to preserve its modest intraday gains just below mid-1.3900s.
The pair regained some positive traction on the first day of a new trading week and recovered a major part of Friday’s losses to sub-1.3900s, or over one-week lows. The uptick, however, lacked any strong follow-through buying, instead faced rejection near the key 1.4000 psychological mark amid a sudden pickup in the US dollar demand.
The greenback attracted some dip-buying during the first half of the European session and was being supported by a modest bounce in the US Treasury bond yields. Investors remain optimistic about the prospects for a strong global economic recovery amid the progress in COVID-19 vaccinations and a massive US fiscal spending plan.
In fact, the House of Representatives passed US President Joe Biden’s $1.9 trillion relief package on Saturday. The legislation will now move to the US Senate for further deliberation. The development forced investors to start pricing in an uptick in inflation and raised doubts about the possibility of ultra-low interest rates for a longer period.
This, in turn, continued fueling the reflation trade, which pushed the yield on the benchmark 10-year US government bond to the highest level since February 2020 last week and underpinned the USD. That said, a strong rally in the equity markets might cap gains for the safe-haven USD and help limit deeper losses for the GBP/USD pair.
Apart from this, an upward revision of the UK Manufacturing PMI for February, which was finalized at 55.1 as against 54.9 estimated, extended some support to the GBP/USD pair. This comes on the back of the British government’s plan to ease current lockdown measures and hopes for a swift UK economic recovery, which should further underpin the sterling.
From a technical perspective, the GBP/USD pair’s inability to capitalize on the positive move and the emergence of some selling at higher levels favours bearish traders. Sustained weakness below the 1.3900 mark will reinforce the negative outlook and suggest that the GBP/USD pair has already topped out in the near-term.
Market participants now look forward to the US economic docket, highlighting the release of ISM Manufacturing PMI later during the early North American session. This, along with the US bond yields and the broader market risk sentiment, might influence the USD price dynamics and produce some short-term trading opportunities around the GBP/USD pair.
Technical levels to watch
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