The GBP/USD pair edged lower through the early part of the European session and dropped to a fresh daily low, around the 1.3420 region in the last hour.
The pair struggled to capitalize on Friday's modest bounce from the vicinity of the 1.3400 round figure, instead met with fresh supply on the first day of a new week. This marked the second successive day of a negative move and was sponsored by a combination of factors.
The deadlock over the post-Brexit arrangement in Northern Ireland and fishing rights overshadowed the prospects for an imminent interest rate hike by the Bank of England in December. This, in turn, continued acting as a headwind for the British pound amid sustained US dollar buying.
The key USD Index stood tall near multi-month highs amid growing acceptance that the Fed would be forced to adopt a more aggressive policy response to contain stubbornly high inflation. This was reinforced by elevated US Treasury bond yields, which continued underpinning the USD.
Apart from this, worries about surging COVID-19 cases further benefitted the greenback's relative safe-haven status and exerted some downward pressure on the GBP/USD pair. That said, the lack of any strong follow-through selling warrants some caution for aggressive bearish traders.
There isn't any major market-moving UK macro data due for release on Monday, while the US economic docket features the release of Existing Home Sales. Hence, the focus will remain on Brexit-related developments, which will influence the GBP and provide some impetus to the GBP/USD pair.
On the other hand, the US bond yields will drive the USD demand. This, along with the broader market risk sentiment should allow traders to grab some short-term opportunities around the GBP/USD pair.
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