GBP/USD retreats from two-week tops, drops to mid-1.3800s on renewed USD strength
- GBP/USD witnessed an intraday turnaround from two-week tops amid a modest USD uptick.
- The upbeat US economic outlook, a softer risk tone drove some flows to the safe-haven USD.
- Rising bets for an earlier than expected Fed rate hike support prospects for further USD gains.
The GBP/USD pair came under some selling pressure during the early European session and dropped to fresh daily lows, around mid-1.3800s in the last hour.
The pair failed to capitalize on its early uptick to over two-week tops, instead met with a fresh supply near the 1.3920 area and was pressured by a modest pickup in demand for the US dollar. Investors remained optimistic about the US economic outlook amid the impressive pace of coronavirus vaccinations and US President Joe Biden's infrastructure spending plan of over $2 trillion.
Monday's upbeat US ISM Services PMI added to the narrative of a relatively faster US economic recovery from the pandemic. This, in turn, was seen as a key factor that continued underpinning the USD. Apart from this, a generally softer tone surrounding the US equity futures also benefitted the USD's relative safe-haven status and exerted some downward pressure on the GBP/USD pair.
Meanwhile, the USD bulls seemed rather unaffected by the ongoing retracement slide in the US Treasury bond yields, instead took cues from rising bets for a sooner than expected Fed rate hike. The reflation trade has been fueling expectations for an uptick in US inflation and also raised doubts that the Fed will retain ultra-low interest rates for a longer period.
The combination of factors, to a larger extent, offset the optimism over the highly successful vaccination distribution program and the gradual reopening of the UK economy. This, in turn, suggests that the path of least resistance for the greenback remains up and support prospects for the resumption of the GBP/USD pair recent pullback from three-year tops set in February.
Technical levels to watch