GBP/USD stays firmer past 1.3600 despite Brexit, coronavirus fears, US inflation eyed

• GBP/USD refreshes 10-week top during the two-day uptrend.
• Fears that UK Brexit Minister Truss has “personal” reasons to trigger Article 16 keep negotiators on toes before Thursday’s meeting.
• UK PM Johnson is under pressure amid holding booze party during early pandemic days.
• Fed’s Powell defends the bulls but US CPI may challenge the upside potential.

GBP/USD picks up bids to 1.3645, up 0.10% intraday while heading into Wednesday’s London open.

In doing so, the cable pair renews the two-month top amid broad US dollar weakness, as well as the market’s cautious optimism ahead of the key US Consumer Price Index (CPI) data for December.

The quote’s upside momentum largely takes clues from Fed Chair Jerome Powell’s testimony in front of the US Senate Banking Committee. Fed’s Powell showed readiness to inflate the benchmark rate but comments stating that the balance sheet runoff could happen "perhaps later in the year," seemed to have underpinned the US Dollar Index’s (DXY) 0.35% daily fall the previous day. On the same line was Powell’s expectations that the supply crunch will ease somewhat and the economic impact of the Omicron variant will be short-lived. That said, the DXY refreshed a two-month low earlier during today’s Asian session.

Powell’s comments not only weakened the DXY but also drowned US Treasury yields, which in turn favored the GBP/USD buyers afterward despite the recent negatives from Brexit and the coronavirus fronts.

The UK Express quotes leading British Commentator Henry Hill to mention that British Trade Minister, also the newly appointed Brexit Chief, has the "personal motivation" to force Boris Johnson's hand on Article 16 "whether he wants it or not." The reason cited is that Truss is a contender for the Conservative leadership.

Also on the negative side was the recently high UK covid cases and fears of a wild spread ahead. Furthermore, Tory dislike for UK PM Johnson’s garden party during the peak covid wave in 2021 also should have challenged the GBP/USD buyers, but it didn’t.

It’s worth noting that the firmer US inflation expectations, per the 10-year breakeven inflation rate per the St. Louis Federal Reserve (FRED) data, which jumped the most in two months the previous day, also adds to the upside filters for the Cable pair.

Against all odds, GBP/USD buyers keep the reins and wait for the US CPI data, expected 7.0% YoY versus 6.8% prior, for fresh impulse.

Read: US Inflation Preview: Dizzying heights of 7% would cement a March hike, supercharge the dollar

Technical analysis

Although nearly overbought RSI challenges GBP/USD buyers, a clear upside break of the seven-month-old resistance line, now support around 1.3595, hints at the pair’s further advances towards the 50% Fibonacci retracement (Fibo.) of June-December downside, near 1.3700.