GBP/USD retreats towards 1.2000 as DUP eyes to ‘test’ Brexit deal’s practicality

• GBP/USD takes offers to refresh intraday low, fades week-start run-up.
• DUP raises doubts on UK PM-inspired Brexit deal on grounds of practicality, NI’s place in the UK.
• Former British PM Boris Johnson also pushed DUP to check new deal thoroughly.
• Hawkish Fed bets, mixed concerns keep Cable bears hopeful despite sluggish end of February.

GBP/USD fades Brexit-inspired optimism heading into Tuesday’s London open as the Cable pair renews intraday low near 1.2040 while paring the biggest daily run-up in a month, marked the previous day.

The Cable pair’s latest pullback could be linked to the US Dollar’s recovery, as well as fresh doubts on the Brexit deal between UK Prime Minister Rishi Sunak and European Commission President Ursula von der Leyen.

UK PM Sunak hailed framework that delivers ‘decisive breakthrough’ on trade in Northern Ireland (NI), per The Telegraph. However, the leader of the Democratic Unionist Party (DUP) has said he and his colleagues will take their time to examine the new Brexit deal for Northern Ireland, reported the BBC. Also challenging optimism surrounding the NI Protocol norms are the reports shared by the Daily Express saying, “Boris Johnson has privately urged the DUP to be cautious about backing Rishi Sunak's Brexit deal.”

On the other hand, the US Dollar Index (DXY) prints mild gains around 104.80, following a downbeat start of the week, as greenback bulls cheer hawkish Fed bets despite mixed US data amid an unimpressive day so far. Adding strength to the US Dollar’s rebound could be the recent pick-up in yields.

Talking about the risk catalysts, market sentiment improves on headlines suggesting the fact that the US offers an olive branch to Chinese companies despite its political differences with the dragon nation. “Despite fraying relations with Beijing, US President Joe Biden is expected to forego expansive new restrictions on American investment in China, denying a push by some hawks in his administration and Congress,” reported Politico late Monday. Alternatively, US National Security Advisor Jake Sullivan’s comments on China suggest that the political tussle among the world’s top two economies stays on the table. “China’s stance on the Russian invasion of Ukraine puts it in an “awkward” position internationally and any weapons support to Russia would come with ‘real costs,’” said US Security Adviser Sullivan on CNN’s “State of the Union” on Monday.

It should be noted that the Bank of England (BoE) policymakers stay on the same ground as their Federal Reserve (Fed) counterparts and put a floor under the GBP/USD price.

While portraying the mood, , the S&P 500 Futures print mild gains around 3,995, extending the week-start rebound from the monthly low, whereas the US two-year Treasury yields remain sidelined near 4.79% after reversing from a three-month high on Monday. That said, the US 10-year Treasury bond coupons seek clear directions near 3.92% following a downbeat start of the week.

Moving on, US Conference Board’s Consumer Confidence, Chicago Purchasing Managers’ Index and Richmond Fed Manufacturing Index for February, as well as the preliminary US trade numbers for January, will decorate the calendar and will be important for the pair traders to watch. Though, major attention should be given to the Brexit developments as the newly agreed deal heads to the British Parliament for approval.

Technical analysis

A clear downside break of the two-week-old resistance-turned-support line near 1.2040 becomes necessary for the GBP/USD bears to retake control. Until then, the Cable bulls can keep poking a downward-sloping resistance line from February 02, close to 1.2110 by the press time.