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  • COVID-19/Brexit woes failed to assist GBP/USD to capitalize on its modest intraday gains.
  • A softer tone surrounding the USD, upbeat UK jobs report also did little to impress bulls.
  • Weakness below the overnight swing lows will set the stage for a test of the 1.4000 mark.

The GBP/USD pair retreated around 35 pips from the early European session highs and refreshed daily lows, below the 1.4100 mark in the last hour.

The pair struggled to capitalize on its intraday positive move, instead met with some fresh supply near the 1.4130 region and was pressured by a combination of factors. The UK government’s decision to delay the final stage of easing lockdown measures acted as a headwind for the British pound. In fact, UK Prime Minister Boris Johnson pushed back the timeline to end restrictions fully to July 19 from June 21.

The latest developments dampen prospects for a rapid UK economic recovery from the pandemic amid the spread of the so-called Delta variant. Apart from this, concerns about the EU-UK stand-off on the Northern Ireland protocol further undermined the British pound and capped any meaningful upside for the GBP/USD pair.

Bulls seemed rather unimpressed by the mostly upbeat UK jobs report, which showed that the unemployment rate dropped to 4.7% in April – in line with market expectations – from the 4.8% previous. This was accompanied by stronger wage growth data and a further decline in the number of people claiming unemployment-related benefits.

On the other hand, a fresh leg down in the US Treasury bond yields kept the US dollar bulls on the defensive, though did little to lend any support to the GBP/USD pair. That said, expectations of a slightly less dovish Fed should hold traders to place any aggressive bearish bets around the USD ahead of the FOMC decision on Wednesday.

The fundamental backdrop supports prospects for further weakness. However, it would still be prudent to wait for some follow-through selling below the overnight swing lows, around the 1.4070 region before confirming the bearish bias. The GBP/USD pair might then accelerate the slide towards challenging the key 1.4000 psychological mark.

Technical levels to watch