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  • GBP/USD failed to preserve/capitalize on its early European session positive move to three-day tops.
  • Brexit jitters offset renewed USD selling, optimistic outlook for the UK economy and capped the upside.

The GBP/USD pair faded an early European session spike to three-day tops and quickly retreated below the 1.4100 mark in the last hour.

Following a brief consolidation through the early part of the trading action on Monday, the pair regained traction and build on last week’s goodish bounce from the key 1.4000 psychological mark. This marked the second day of a positive move and was sponsored by the emergence of some fresh selling around the US dollar.

The USD was being weighed down by Friday’s disappointing US Retail Sales data, which reaffirmed the Fed’s dovish view and forced investors to trim their bets for an earlier than anticipated tightening. This, along with the ongoing decline in the US Treasury bond yields, further acted as a headwind for the greenback.

Even a softer tone around the equity markets – amid worries about the continuous surge in new COVID-19 cases across Asia – did little to lend any support to the safe-haven greenback. On the other hand, the British pound was supported by an optimistic economic outlook amid the gradual easing of restrictions in the UK.

In fact, Britain relaxed restrictions on its economy and social contact further, effective this Monday. Among other measures, people will be allowed to hug each other again and pubs and restaurants will be able to serve customers inside. This helped offset worries about the fast-spreading Indian variant of the virus.

That said, uncertainty over the post-Brexit agreement on Northern Ireland held bulls from placing aggressive bets around the GBP/USD pair. Reports indicate that Ireland is increasingly concerned that British Prime Minister Boris Johnson wants to completely rewrite the Northern Ireland section of the Brexit deal.

In the absence of any major market-moving economic releases from the UK or the US, it prudent to wait for some follow-through buying before positioning for any further appreciating move. Meanwhile, the market risk sentiment and the US bond yields might influence the USD price dynamics, which might provide some trading impetus.

Technical levels to watch

 

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