GBP/USD rebound battles 50-DMA, Brexit Freedoms Bill, BOE in focus

• GBP/USD extends Friday’s corrective pullback from five-week low.
• UK Foreign Secretary Truss hints at PM Johnson’s job safety despite ‘Partygate’ issue.
• Devolved administrations criticize Brexit Freedoms Bill despite claims to cut £1 billion of red tape.
• US Treasury yields stay firmer but USD extends Friday's weakness amid quiet start to the key week.

GBP/USD picks up bids to refresh intraday high near 1.3415, up 0.11% on a day as markets cheer USD pullback during a sluggish start to a crucial week. Also favoring the cable buyers could be the political optimism in the UK.

Although Sue Gray report is yet to be announced, Bloomberg quotes Foreign Secretary Liz Truss as saying, “The future of the PM is assured,” The news relied on the BBC interview also mentions UK’s Truss as saying, “He’s doing an excellent job on the things that matter -- recovering the economy from Covid, getting Brexit done, getting this country going again.”It should be observed that the official report on the covid-linked allegations over UK PM Johnson has been delayed by over two days as the police investigate the matter.

Elsewhere, UK PM Johnson praises Brexit Freedom Bill ahead of its official passage even as devolved governments in Welsh, Scotland and Northern Ireland criticize the plan. “Legislation building on Britain’s exit from the EU would make it easier to amend or remove statutes that remain on U.K. books, a measure that will help the government strip away regulations costing businesses 1 billion pounds ($1.3 billion), Johnson’s office said in a statement released Monday,” said Bloomberg.

On a different page, “UK reports the lowest number of daily COVID cases since 14 December,” per Sky News.

Alternatively, the US Dollar Index (DXY) part ways from the Treasury yields to extend Friday’s pullback from the highest levels since July 2020. Behind the moves could be the market’s indecision over the pace of the Fed’s rate hike in March after the recently downbeat wage price data.

On Friday, markets raised doubts on the Fed’s hawkish action in March following softer prints of the US Q4 Employment Cost Index (ECI). However, strong readings of the Fed’s preferred gauge of inflation, namely Core PCE Price Index for December rose to 4.9%, versus 4.8% forecast and 4.7% prior, keeping the Fed hawks on the table.

Following the US data release, Federal Reserve Bank of Minneapolis President Neel Kashkari said that he expects Fed to raise rates at the March meeting. Though, the policymaker emphasized the importance of incoming data while also saying, “Have to see how data plays out.”

On the same line was Raphael Bostic, president of the Fed’s Atlanta branch who reiterated his call for three Fed rate lifts in 2022, in an interview with the Financial Times (FT), with the first coming in March. “If the data say that things have evolved in a way that a 50 basis point move is required or [would] be appropriate, then I’m going to lean into that . . . If moving in successive meetings makes sense, I’ll be comfortable with that,” said Fed’s Bostic per FT.

Looking forward, developments surrounding Brexit and UK politics may entertain GBP/USD traders. However, major attention will be given to the Bank of England (BOE) rate hike concerns after recently upbeat British statistics.

Technical analysis

Sustained bounce from the 61.8% Fibonacci retracement (Fibo.) level of December-January upside, near 1.3385, needs to overcome the 50-DMA and a 12-day-old resistance line, respectively around 1.3420 and 1.3445, to convince GBP/USD buyers.