- British pound has not been able to attract investors so far this week.
- UK PMI data revealed robust expansion in private sector's economic activity.
- Dollar rally seems to have lost its steam.
GBP/USD has been finding it hard to stage a convincing rebound early Tuesday despite the modest selling pressure surrounding the greenback. In the event the pair fails to reclaim 1.3400, bears could view the failure as a selling opportunity.
Following US President Joe Biden's decision to nominate Jerome Powell for a second four-year term as the Fed chair, the dollar continued to outperform its rivals on the back of surging US Treasury bond yields. The US Dollar Index, however, seems to have lost its bullish momentum on Tuesday with market participants focusing on the FOMC Minutes and Wednesday's high-tier data releases.
A UK cabinet minister said on Monday that the UK will "absolutely not" trigger Article 16 before the end of the year. Although this comment suggests that sides will have more time to find a middle ground on the Nothern Ireland protocol, the British pound struggles to gain traction.
In the meantime, the preliminary Markit PMI data revealed on Tuesday that the business activity in the private sector continued to expand at a strong pace in early November.
Commenting on the survey, "for policymakers concerned about the health of the labour market after the end of the furlough scheme, the buoyant jobs growth signalled should bring some reassuring comfort." Said Chris Williamson, Chief Business Economist at IHS Markit.
Despite fears the supply demand imbalance in the jobs market could lead to runnaway wage rises, British businesses in the private-sector are only planning modest wage rises below the rate of inflation, according to a recent industry survey – a development that could allow the Bank of England to go for a rate hike that is less than 20 basis points in December. Hence, GBP/USD has been unable to shake off the bearish pressure so far.
GBP/USD Technical Analysis
The Relative Strength Index (RSI) indicator on the daily chart is staying a little above 30, suggesting GBP/USD could still edge lower before enteriong the oversold zone and needing to stage a technical correction. On the downside, the 1.3350/60 area aligns as key support, and a daily close below that level could open the door for additional losses toward 1.3300 (psychological level).
On the flip side, GBP/USD would need to hold above 1.3400 (Fibonacci 23.6% retracement of the November 9-12 drop, psychological level) in order to attract buyers and target 1.3440 (Fibonacci 38.2% retracement) before 1.3460/70 (Fibonacci 50% retracement, 50-period SMA) and 1.3500 (psychological level).
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