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GBP/USD hangs near session lows, around mid-1.4100s

  • A combination of factors failed to assist GBP/USD to capitalize on the overnight strong rebound.
  • COVID-19 jitters, disappointing UK macro data weighed on the sterling and capped the upside.
  • A modest USD rebound further acted as a headwind, warranting some caution for bullish traders.

The GBP/USD pair retreated around 30 pips from intraday swing highs and was last seen hovering near the lower end of its intraday trading range, just above mid-1.4100s.

The pair struggled to capitalize on the previous day's strong bounce of over 100 pips from four-week lows, around the 1.4075-70 region and witnessed a subdued/range-bound price action on Friday. Worries that the UK may delay its plans to end restrictions fully on June 21 in light of the spread of the so-called Delta variant. This, along with mostly disappointing UK macro data, acted as a headwind for the British pound and capped gains for the GBP/USD pair.

The monthly UK GDP report showed that the economy expanded by 2.3% in April as against consensus estimates pointing to a growth of 2.4%. This, however, was better than the 2.1% rise recorded in March. Separately, the UK industrial and manufacturing production data indicated that Britain’s industrial sector recovery faltered in April. In fact, manufacturing dropped -0.3% MoM, while total industrial output came in at -1.3% during the reported month.

On the other hand, the US dollar attracted some dip-buying and seemed rather unaffected by the ongoing decline in the US Treasury bond yields. Investors seem aligned with the Fed's narrative that any spike in inflation is likely to be transitory and remain convinced that the Fed will retain its ultra-lose monetary policy for a longer period. This, in turn, dragged the yield on the benchmark 10-year US government bond to its lowest level since early March.

Meanwhile, the intraday slide reaffirmed a stiff resistance near the 1.4190-1.4200 region, which should now act as a key pivotal point for short-term traders. A sustained move beyond will mark a near-term bullish breakout and set the stage for an extension of the recent strong positive move witnessed over the past two months or so. Conversely, weakness back below the 1.4100 mark will negate prospects for any further gains and turn the GBP/USD pair vulnerable.

Technical levels to watch

 

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