GBP/USD extends pullback from 34-month top amid US dollar gains, UK CPI in focus

• GBP/USD drops back to Tuesday’s low while extending latest losses from 1.3934.
• EU 'clearing house' seeks to calm Brexit tensions over Northern Ireland.
• UK’s seven-day total covid-led deaths drop 26%, British task force eyes two jabs to all the adults by September.
• UK CPI, US Retail Sales for January eyed ahead of the FOMC minutes, risk catalysts remain as the key.

GBP/USD stands on a slippery ground while declining to the intraday low near 1.3870, down 0.25%, during Wednesday’s Asian session. In doing so, the cable defies the late Tuesday's bounce off 1.3970 while stretching pullback from the highest since April 2018.

Although coronavirus (COVID-19) vaccine optimism in the UK keeps the sterling buyers hopeful, it’s the US dollar’s recovery moves from the monthly low that tests the bulls.

That said, the US dollar index (DXY) keeps the previous day’s U-turn from a one-month low near the mid-90.00s while following the strongest comeback in three weeks. The USD moves seem to have taken clues from the Treasury yields off-late as the US bond coupons for the 10-year and 30-year jump to the highest since early 2020.

Talking about the risk catalysts, the latest covid figures from the UK suggests an increase of 230 figures in the virus-led death toll to 799. However, the seven-day total figure dropped 26%, per Reuters. British vaccine task force comments to the Sky News, shared via Reuters, also portray the UK’s ability to give two doses of COVID-19 vaccine to all adults by August or September, which in turn favor risk-on mood. Also on the positive side could be the European Union’s (EU) efforts to placate fury over the Northern Ireland border close, signaled by The Guardian.

On the other hand, US policymakers are rolling up their sleeves to announce the much-awaited covid aid relief package as they’re done with Donald Trump’s impeachment. In the latest update, by CNN’s Manu Raju, the bill could cross the House during the next week and may pass through the Senate by March 08.

Amid these plays, S&P 500 Futures drop 0.30% whereas FTSE futures follow the suit with the 0.20% declines by press time.

Looking forward, the GBP/USD traders will keep their eyes on the UK’s Consumer Price Index (CPI) data for January, expected 0.5% versus 0.6% YoY, for fresh impulse. Also important will be the US Retail Sales for the stated month, forecast 1.0% versus -0.7% previous readouts. Should the figures match mixed forecasts, the Cable is likely to remain depressed ahead of the FOMC minutes.

Technical analysis

Only if the quote drops below an ascending trend line from September 2020, currently around 1.3900, GBP/USD bulls should worry. Alternatively, the run-up to the 1.4000 threshold remains intact.