GBP/USD seems vulnerable below mid-1.3500s amid Brexit tensions, awaits US CPI
- GBP/USD witnessed some selling on Wednesday amid resurgent USD demand.
- Rebounding US bond yields, a softer risk tone underpinned the safe-haven USD.
- Brexit jitters, dovish BoE weighed on the GBP and contributed to the selling bias.
- Investors now await US consumer inflation figures for a fresh directional impetus.
The GBP/USD pair broke down of its intraday consolidative trading range and dropped to two-day lows, around the 1.3520-15 region in the last hour.
Following the previous day's good two-way price swings, the GBP/USD pair witnessed fresh selling on Wednesday and was pressured by a combination of factors. The US dollar made a solid comeback amid a goodish pickup in the US Treasury bond yields and a generally softer risk tone.
The markets seem convinced that the Fed would be forced to adopt a more aggressive policy response to contain the faster-than-expected rise in inflationary pressures. This, in turn, was seen as a key factor that acted as a tailwind for the US bond yields and underpinned the greenback.
On the other hand, the British pound was weighed down by the BoE's dovish decision to hold interest rates steady last week. This, along with worries that the UK government will trigger Article 16 of the Northern Ireland Protocol, supports prospects for further losses for the GBP/USD pair.
Apart from this, a weaker trading sentiment around the equity markets should benefit the USD's relative safe-have status and add credence to the negative outlook. That said, investors might refrain from placing aggressive bets ahead of the release of the US consumer inflation figures.
The US CPI report, scheduled later during the early North American session, could influence market expectations about the Fed's next policy move. This, in turn, will play a key role in driving the USD demand in the near term and provide a fresh directional impetus to the GBP/USD pair.
Technical levels to watch