GBP/USD: Depressed below 1.3700 despite cautious optimism at UK

GBP/USD holds lower ground near 1.3660-55 during the initial Asian trading session on Tuesday. In doing so, the cable fails to cheer upbeat news from the UK as the US dollar index rises to an eight-week top.

While a strong vaccination drive and recently receding coronavirus (COVID-19) figures could have favored GBP/USD bulls, the first South African covid variant case in England without any travel history probe the optimism. It’s worth mentioning that the 600,000 jabs a day milestone pushed UK PM Boris Johnson see flat infection rates and help push for the school to reopen.

Also on the positive side could be UK Chancellor Rishi Sunak’s acceptance, following multiple resistance, of the Tory manifesto that restricts him from hiking income tax, national insurance, or value-added tax, per the Financial Times (FT). “Treasury officials had hoped Mr. Sunak would ditch the Tories’ 2019 election manifesto commitment, which stops him using the three biggest tax levers to start curbing a deficit that is expected to top £400bn in 2020-21 because of the coronavirus crisis. Instead, Mr. Sunak has agreed with Boris Johnson that the triple tax lock must be maintained, according to government insiders — a move that could force him to seek increases in other taxes, including corporation tax and possibly capital gains tax,” said the news.

On the other hand, US President Joe Biden is discussing the much-awaited stimulus with Republicans as they hold back the aid package amount from a $1.9 trillion proposal to around $600 billion.

Further to note are mixed activity numbers for January from the UK and the US. While the UK’s Manufacturing PMI rose past-52.9 to 54.1, the US ISM Manufacturing PMI eased below 60.00 expected to 58.7 during the last month.

Despite the US dollar’s strength, backed by the retail rush to silver and fears of extra restrictions on trading, Wall Street benchmarks managed to post upbeat closing by the end of Monday whereas the US 10-year Treasury yields dropped 15 basis points (bps) top 1.07% during the stated time.

Moving on, a lack of major data/events on the calendar will push GBP/USD traders to keep their eyes on the macro news for a fresh direction. In doing so, US stimulus and social media chatters will be the key.

Technical analysis

Although 21-day SMA and a three-week-old rising support line restrict immediate GBP/USD downside around 1.3655-45, the pair buyers are less likely to get excited unless witnessed a fresh multi-month high above 1.3760.