GBP/USD: Refreshes six-week low towards 1.3700 ahead of UK CPI, PMI data

• GBP/USD remains depressed around multi-day low after heaviest drop in a month.
• UK’s vaccine optimism can’t supersede the US dollar strength, risk-off mood.
• British inflation, activity numbers can offer immediate directions but qualitative catalysts remain as the key.

GBP/USD stands on slippery ground, refreshing the lowest level since February, while taking offers near 1.3740 during the early Asian session on Wednesday. In doing so, the cable respects the US dollar’s broad strength amid risk-off mood while ignoring the coronavirus (COVID-19) vaccine optimism at home.

US dollar index (DXY) rose to a two-week top the previous day as Fed policymakers kept rejecting the reflation fears but couldn’t convince the markets. Among them, Fed Chair Jerome Powell and Dallas Federal Reserve President Robert Kaplan were optimistic over the economic recovery and rate hikes but Federal Reserve Governor Lael Brainard  and St. Louis Fed President James Bullard offered mixed signals afterward. Also, US Treasury Secretary Janet Yellen defended the Biden administration’s stimulus while turning down the tax-hike fears to favor the greenback.

Also contributing to the USD rise were fears of a full-fledged West versus China tussle after an alliance among the US, the UK, Canada and the European Union (EU) harshly criticized human rights violations in Xinjiang. Brussels went a step farther to levy sanctions on Beijing diplomats which the dragon nation retaliated.

It should be noted that the extension of the virus-led lockdowns in Germany and the Netherlands also contribute to the risk-off mood while the bloc’s efforts to test the UK’s covid vaccine supply exerted additional downside pressure on the sentiment.

At home, mixed employment figures and the government’s readiness to jab school children from August fail to offer any clear direction to the GBP/USD moves. On the same line were comments from UK Chancellor Rishi Sunak who cited challenges for the global economy.

While portraying the sentiment, Wall Street benchmarks flashed red and the US 10-year Treasury yields also dropped on Tuesday whereas stock futures are currently directionless.

Moving on, the UK’s Consumer Price Index (CPI) data for February, expected 0.8% versus 0.7%, will be the immediate catalysts for GBP/USD ahead of the preliminary readings of March month’s activity numbers. It should, however, be noted that the risk catalyst remains the key to follow.

Technical analysis

A sustained break of 50-day SMA of 1.3830 and bearish MACD directs GBP/USD sellers towards a 100-day SMA level of 1.3617. However, any further downside depends upon the pair’s ability to pierce off February’s low of 1.3566.