GBP/USD holds comfortably above 1.3900 mark, US ISM PMI eyed for fresh impetus

 

  • GBP/USD struggled to build on its intraday positive move and faced rejection near the 1.4000 mark.
  • Renewed USD buying interest was seen as a key factor that prompted some selling at higher levels.
  • Optimism over a swift UK economic recovery underpinned the GBP and helped limit the downside.

The GBP/USD pair refreshed daily lows in the last hour, albeit managed to defend the 1.3900 mark and quickly recovered few pips thereafter. The pair was last seen trading just below mid-1.3900s, up around 0.10% for the day.

The pair failed to capitalize on its intraday uptick, instead faced rejection near the key 1.4000 psychological mark amid a goodish pickup in the US dollar demand. The reflation trade has been fueling expectations that the Fed will have to tighten monetary policy earlier than previously expected. This was seen as a key factor that continued lending some support to the USD and kept a lid on any meaningful upside for the GBP/USD pair.

The negative factor, to some extent, was offset by the optimism over the UK government’s plan to ease current lockdown measures and hopes for a swift UK economic recovery. Apart from this, comments by the Bank of England (BoE) Deputy Governor Dave Ramsden, saying that contingency planning is very different from thinking negative rates will be used extended some support to the British pound and helped limit the downside for the GBP/USD pair.

That said, the pair’s inability to attract any follow-through buying indicates that a lot of positive is already priced in for the sterling. This, in turn, suggests that the near-term bias might have shifted in favour of bearish traders. Sustained weakness below the 1.3900 round-figure mark will reaffirm the negative outlook and turn the GBP/USD pair vulnerable to extend its recent corrective slide from the vicinity of mid-1.4200s, or three-year tops.

Market participants now look forward to the US economic docket, highlighting the release of the US ISM Manufacturing PMI. This, along with the US bond yields, will influence the USD price dynamics and produce some short-term trading opportunities around the GBP/USD pair.

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2021-03-01