GBP/USD pokes two-month top around 1.3600 as USD pullback supersedes Brexit, covid fears

• GBP/USD remains firmer around the highest levels in nine weeks.
• DUP Leader pushes for NI solution, Truss sounds optimistic before Brexit talks with EU’s Maros Sefcovic.
• Virus woes escalate but UK Retail Sales, consumer spending increased in December.
• Cautious optimism weigh on yields, US dollar ahead of Fed Chair Powell’s testimony.

GBP/USD stays firmer around 1.3600, up 0.12% intraday heading into Tuesday’s London open. The cable pair rose to the highest levels since November 09 the previous day before reversing from 1.3603 amid a US dollar rebound. The latest advances, however, are multiple catalysts responsible in addition to the greenback’s weakness.

Among them, upbeat details of the UK British Retail Consortium (BRC) consumer survey and Barclaycard data, shared by Reuters, gain the first attention. “Total sales in November were 5.0% higher than a year earlier, the biggest annual increase since July and up from an increase of 1.3% in October,” the news said. Reuters also added, “Separate credit and debit card data from payments provider Barclaycard showed consumer spending - which includes things such as eating out and travel, as well as shopping - was 16.0% higher than in November 2019, before the pandemic.”

Elsewhere, the Financial Times (FT) quotes multiple economists, including former Bank of England official Tony Yates, to back UK PM Boris Johnson’s decision to ride out the Omicron wave of Covid-19 infections with minimal restrictions might turn out to be the right call for the economy.

Additionally, comments from Merck, suggesting that the Molnupiravir mechanism to work against omicron, as well as any covid variant, joins the latest easing of the virus cases in the UK versus the record daily infections in the US to help the GBP/USD buyers.

On the contrary, the Democratic Unionist Party (DUP) leader Sir Jeffrey Donaldson said that the British government must outline a timetable for how and when changes will be made to Northern Ireland (NI) Protocol, after meeting UK Brexit Minister Liz Truss. It should be noted, however, that the FT said, “Truss has struck a warmer tone than Frost in initial contacts and has invited Maros Sefcovic, the EU’s Brexit commissioner, to meet at her grace-and-favor mansion in Chevening, Kent, on Thursday night, promising “constructive proposals” to break the deadlock.”

Furthermore, indecision over the Fed’s next moves and steady print of the US inflation expectations, as per 10-Year Breakeven Inflation Rate numbers from the Federal Reserve Bank of St. Louis (FRED), favor the market’s cautious optimism during Asia.

While portraying the mood, the US Treasury yields traded mixed while the US Dollar Index (DXY) reverses the previous day’s gains. Further, the S&P 500 Futures remains indecisive.

Moving on, today’s testimony by Fed Chairman Jerome Powell will offer intraday direction ahead of Wednesday’s US Consumer Price Index (CPI).

Read: US Consumer Price Index December Preview: The Fed’s die is cast

Technical analysis

While the current advances eye 1.3600 threshold, the upper line of the stated triangle from December 31 and a horizontal line comprising multiple levels marked since November, highlight the 1.3610 level as the key hurdle. Should the quote rises past 1.3610, which becomes less likely, a run-up towards November’s high near 1.3700 can’t be ruled out.

On the flip side, pullback moves may initially aim for the triangle’s lower line near 1.3550, a break of which will direct sellers towards a 50-SMA level of 1.3530