GBP/USD struggles to defend 1.3400 on Brexit fears, sluggish markets

• GBP/USD fades bounce off yearly low ahead of the heavy calendar week.
• EU’s Sefovic said there had been a change in tone, UK sets post-Brexit export strategy.
• British officials have compiled covid exit strategy from April, leaked report suggests.
• US stimulus, inflation chatters add to the watcher’s list.

GBP/USD looks hesitant while defending Friday’s rebound from yearly low, around 1.3415 during Monday’s Asian session. That said, the cable pair dropped for three consecutive weeks in the last despite the previous day’s corrective pullback from the lowest level since December 2020.

A 10-year low of the US Michigan Consumer Sentiment Index probed chatters concerning the rate hike and inflation, which in turn allowed the US Dollar Index (DXY) to consolidate the biggest weekly gains since mid-August.

The corrective pullback also took clues from the Brexit chatters as the Daily Mail conveyed, “European Commission vice-president Maros Sefcovic said yesterday there had been a ‘change in tone’ during talks in London with Brexit minister Lord Frost.” Also on the positive side were the headlines from the Financial Times (FT) suggesting the UK’s £1 trillion export strategy.

It should be noted, however, that the uncertainties over the Northern Ireland (NI) border restrictions challenge the latest talks with the UK’s threat of activating Article 16 being termed as a disaster by the mastermind behind the 2016 Brexit vote Dominic Cummings, per Bloomberg.

Elsewhere, The Guardian came out with a leaked report from Government while saying, “Officials have been working on a ‘Covid exit strategy’ called Operation Rampdown, under which the government could wind down testing and people would no longer be forced to isolate if they are ill from April.” It should be noted that the UK’s covid cases have been softer of late while the Europe registers jump in the daily infections.

On a different page, the US data flash mixed signals concerning the need for the Fed rate hike and more stimulus from President Joe Biden. Even so, US Treasury Secretary Janet Yellen and Federal Reserve Bank of Minneapolis President Neel Kashkari favor the much-awaited aide packages.

Amid these plays, S&P 500 Futures print mild gains while the US 10-year Treasury yields remain lackluster. That said, the US Dollar Index (DXY) edges higher around the highest levels last seen during July 2020.

Moving on, risk catalysts and comments from the BOE officials may entertain the GBP/USD traders and may keep bears hopeful. However, major attention will be given to this week’s slew of British data to confirm the Bank of England’s (BOE) mixed concerns over the rate hike prospects.

Technical analysis

Unless crossing the lows marked during February and July 2021, around 1.3565-75, GBP/USD bears keep reins.