GBP/USD moves away from YTD lows, upside seems limited ahead of Brexit talks

• GBP/USD staged a goodish rebound from fresh YTD lows touched earlier this Friday.
• A modest USD profit-taking was seen as a key factor that extended some support.
• Brexit jitters, last week’s dovish BoE decision kept a lid on any meaningful upside.

The GBP/USD pair refreshed daily tops during the early European session, albeit lacked follow-through and remained below the 1.3400 round-figure mark.

The pair found some support near mid-1.3300s and staged a modest rebound from the lowest level since December 2020 touched earlier this Friday, snapping three days of the losing streak. The US dollar witnessed some profit-taking after hitting 16-month tops, which, in turn, was seen as a key factor that extended some support to the GBP/USD pair. That said, any meaningful recovery still seems elusive and the attempted recovery move runs the risk of fizzling out rather quickly.

The hotter-than-expected US consumer inflation figures released on Wednesday reaffirmed market expectations that the Fed would be forced to hike interest rates sooner rather than later. In fact, the Fed funds futures indicate that the first-rate hike could come as soon as July 2022. This, along with elevated US Treasury bond yields should help limit any meaningful USD corrective slide and hold back bulls from placing aggressive bets around the GBP/USD pair amid Brexit woes.

Britain has threatened that suspending the part of the Brexit deal that pertains to Northern Ireland is very much on the table. On the other hand, the European Union is preparing a package of retaliatory measures if the UK triggers Article 16. Both sides are due to enter new negotiations on Friday in an attempt to avoid a looming trade war. Apart from this, the Bank of England's dovish decision last week could further collaborate to cap any meaningful gains for the sterling.

Hence, it will be prudent to wait for a strong follow-through buying before confirming that the recent rejection slide from the very important 200-day SMA has run its course. Market participants now look forward to a scheduled speech by the BOE MPC member Jonathan Haskel for some impetus. Later during the early North American session, the Prelim Michigan Consumer Sentiment Index might influence the USD price dynamics and produce some trading opportunities around the GBP/USD pair.

Technical levels to watch