GBP/USD: Offered below 1.3900 as covid variants threaten vaccine progress ahead of UK budget

• GBP/USD sellers refresh the lowest levels since February 18, print four-day losing streak.
• UK traces covid strains from Brazil, US CDC warns of "potential fourth surge of cases" due to virus variants.
• British diplomat Frost urged to ban EU bottled water in a fresh Brexit tussle, Sunak eyes heavy stimulus, help London in the Wednesday’s budget.

GBP/USD drops to the fresh low in eight days, currently down 0.40% around 1.3870, while heading into the London open on Tuesday. In doing so, the Cable drops for the fourth consecutive day as fears of the Brazilian variant of the coronavirus (COVID-19) downplays earlier vaccine optimism. Also favoring the sterling sellers could be the cautious sentiment ahead of US stimulus and the UK’s annual budget.

While medical authorities in Britain are struggling to find the new version of the COVID-19, its characteristic of lowering natural immunity challenges the recently upbeat immunization in the developed countries. While identifying the threat, the head of the US Centers for Disease Control and Prevention (CDC) Dr. Rochelle Walensky recently said, per the BBC, "Please hear me clearly: At this level of cases, with variants spreading, we stand to completely lose the hard-earned ground we have gained." 

Also favoring the bears could be Brexit pessimism as British fishermen keep feeling betrayed in the battle versus the bloc while some from the UK push Lord Frost to ban imports of bottled water from the EU, in retaliation to the bloc's ban on unprocessed UK shellfish, per the UK Express.

On the positive side, data from the Public Health of England suggests “A single shot of either the Oxford-AstraZeneca or the Pfizer-BioNTech Covid jab reduces the chance of needing hospital treatment by more than 80%,” per the BBC. Its worth mentioning that the UK has so far jabbed over 20 million people and is leading the global vaccination drive.

Elsewhere, market sentiment remains sluggish as traders await fresh clues of the much-awaited stimulus from the UK and the US. Also challenging the mood could be the high hopes from UK Chancellor Rishi Sunak over his first budget. Global markets expect an extension of tax holidays and loans to various sectors, as well as amenities to put London back on the financial map, from Wednesday’s British budget.

It should be noted that the risks also feared the fresh US-China tussles after US President Joe Biden’s pick for the US Trade Representative (USTR) Katherine Tai conveyed bias for China.

Against this backdrop, stock futures from the US and the UK reverse early Asian gains to print near half a percent of losses by press time. Further, the US 10-year Treasury yields drop 3.0 basis points (bps) to 1.41%.

Moving on, a light calendar will keep risk catalysts in the spotlight. GBP/USD traders should look for any positive signs relating to stimulus and vaccines for witnessing a corrective pullback.

Technical analysis

An ascending trend line from December 21 joins 21-day SMA around 1.3870-65 to challenge GBP/USD sellers. Meanwhile, buyers are likely to wait for a clear upside break of 10-day SMA, at 1.3988 now, before retaking the controls.