GBP/USD: Bears eye 1.3500 on Brexit anxiety, risk-aversion ahead of a busy week

• GBP/USD grinds lower as yields rebound on cautious optimism, Brexit fears stay on the table.
• Truss probed over NI deadlock, hints of easing stand in Brexit.
• UK police contacted PM Johnson over ‘Partygate’ issues, Britain observing hybrid Delta-Omicron strain.
• Ukraine requests Russia for talks, eases geopolitical pressures and favors yields ahead of UK jobs, CPI and Retail Sales data.

GBP/USD licks its wounds around 1.3540 during the early Monday morning in Europe.

In doing so, the cable pair drops the most in a week while bearing the double attack from Brexit and firmer USD ahead of the key data/events from the UK that will highlight Bank of England (BOE) rate hike concerns amid hawkish chatters of late.

UK Foreign Secretary Lizz Truss has been told she can "kiss goodbye" to her leadership hopes if she fails to stand up to the EU, per UK Express. The news also joins the looming concerns over the Northern Ireland (NI) border checks to weigh on GBP/USD prices amid no major progress in the talks.

Elsewhere, UK PM Boris Johnson was recently contacted by the UK police for his lockdown parties, which in turn could add to the political fears and weigh on GBP/USD prices.

Also weighing on the cable prices is the virus update from Fox News stating, “Health officials in the United Kingdom officially began monitoring a hybrid strain of the delta and omicron coronavirus known as "Deltacron" last week after it was identified in a patient in the country, according to the country's Health Security Agency.”

On the other hand, the US Dollar Index (DXY) tracks firmer US Treasury yields to refresh one-week high despite easing fears of the Russia-Ukraine war after Kyiv requested Moscow for a meeting in 48 hours.

Amid these plays, the US 10-year Treasury yields lick their wounds around 1.95%, after shedding over 11 basis points (bps) the previous day. Further, the S&P 500 Futures print mild gains by the press time.

It’s worth noting that Friday’s easing of the Fed’s rate-hike concerns and downbeat yields challenged GBP/USD pair traders the previous day. The CME FedWatch Tool suggests around 50-50 chances of 50 basis points (bps) of a Fed-rate-hike in March versus a 0.25% move. Previously, especially after the US Consumer Price Index (CPI) release, the market was almost certain of a higher boost to the rates. That said, the preliminary readings of the US Michigan Consumer Sentiment for February eased from 67.2 to 61.7 on Friday.

On the other hand, Reuters’ poll suggests another rate hike by the Bank of England (BOE), in March.

Moving on, top-tier UK data will decide how necessary it is for the “Old Lady” to stay hawkish, which in turn may help GBP/USD to recover some of the latest losses. Also important will be Brexit and geopolitical talks.

Also read: GBP/USD Weekly Forecast: ‘Buy the dip’? UK inflation, Fed minutes take center stage

Technical analysis

Unless providing a daily closing beyond the 200-DMA level surrounding 1.3700, GBP/USD bears keep attacking the 50-DMA support near 1.3500 with eyes on January’s low near 1.3355.