GBP/USD ignores Brexit woes to regain 1.1850 as US Dollar retreats

• GBP/USD picks up bids to pare the biggest daily loss in a week.
• UK PM Sunak rules out Swiss-style trade ties with Eurozone.
• US Dollar struggles to cheer escalating Covid woes amid lack of major data/events.

GBP/USD refreshes intraday high around mid-1.1800s, reversing the previous day’s losses, as the US Dollar tracks softer Treasury yields during early Tuesday. In doing so, the Cable pair fails to justify recently escalating fears of a hard Brexit.

“Britain will not pursue any trading relationship with the European Union that relies on the country aligning with the bloc's laws, Prime Minister Rishi Sunak said on Monday after a newspaper reported his government was pursuing closer ties,” mentioned Reuters.

It’s worth noting that the US Dollar Index (DXY) pauses a two-day downtrend near 107.70 as the latest comments from the Federal Reserve (Fed) officials failed to impress policy hawks.

Federal Reserve Bank of Cleveland President Loretta Mester said in a CNBC interview, “I think we can slow down from 75 at the December meeting.” Previously, Atlanta Federal Reserve President Raphael Bostic also turned down the 75 bps move and challenged the DXY bulls.

However, seven-month high daily coronavirus cases from China renewed supply-crunch fears and underpin the US Dollar’s haven demand. Also, the recently firmer prints of the US Retail Sales and Producer Price Index (PPI) for October propelled the hawkish bets on the Fed’s next move and favored greenback buyers previously.

Amid these plays, Wall Street closed in the red and the US Treasury yields recovered before marking mild losses. That said, S&P 500 Futures rise 0.15% intraday near 3,965 whereas the US 10-year Treasury yields dropped one basis point (bp) to 3.81% at the latest.

Moving ahead, a lack of major data/events could allow GBP/USD to defend the latest rebound. However, Wednesday’s preliminary readings of the monthly activity data and the Federal Open Market Committee (FOMC) Meeting Minutes will be crucial for clear directions.

Technical analysis

A one-week-old descending trend line, around 1.1890 by the press time, restricts immediate GBP/USD recovery ahead of the key resistance line from mid-June, close to the 1.2000 threshold at the latest. Alternatively, September’s peak surrounding 1.1590 challenges the bears.