- GBP/USD witnessed some heavy selling on Tuesday and dropped to one-month lows.
- COVID-19/Brexit woes acted as a headwind for the sterling amid a stronger greenback.
- Mixed US macro data did little to provide any meaningful impetus or lend any support.
- Investors might refrain from placing any aggressive bets ahead of the FOMC decision.
The GBP/USD pair dropped to fresh one-month lows, around the 1.4035-30 region, albeit recovered few pips thereafter. The pair was last seen trading around the 1.4070-75 area, still down nearly 0.30% for the day.
A combination of factors prompted some fresh selling around the GBP/USD pair on Tuesday and led to an intraday decline of nearly 100 pips from the 1.4125-30 region. The UK government's decision to delay the final stage of easing lockdown measures dampen prospects for a rapid UK economic recovery from the pandemic amid the spread of the so-called Delta variant. Apart from this, concerns about the EU-UK stand-off on the Northern Ireland protocol acted as a headwind for the British pound.
This, along with a goodish pickup in the US dollar demand, overshadowed better-than-expected UK employment details and exerted some heavy downward pressure on the GBP/USD pair. The USD maintained its bid tone and seemed rather unaffected by mixed US economic data. The hotter-than-expected US Producer Price Index for May added to growing market worries about rising inflationary pressure. This, in turn, cemented expectations for a slightly less dovish Fed and an earlier stimulus withdrawal.
Separately, the US monthly Retail Sales fell short of market expectations and dropped 1.3% MoM in May. Adding to this, core retail sales (excluding autos) and the closely watched Retail Sales Control Group both fell 0.7% during the reported month as against consensus estimates for a reading of +0.2% and -0.6%, respectively. The disappointment, however, was largely offset by an upward revision of the previous month's readings and did little to provide any meaningful impetus to the greenback.
With Tuesday's downfall, the GBP/USD pair now seems to have confirmed a bearish break below a two-month-old ascending trend-channel and remains vulnerable to slide further. Hence, a subsequent decline towards challenging the key 1.4000 psychological mark, en-route the 1.3980-75 horizontal resistance turned support, now looks a distinct possibility. That said, investors' reluctance to place any aggressive bets ahead of the highly-anticipated FOMC decision on Wednesday might help limit losses.
