GBP/USD pares gains from six-week highs, BOE’s Bailey, Chancellor Sunak’s fourth stimulus in focus

GBP/USD consolidates the previous day’s heavy gains while declining to 1.3127, down 0.18% intraday, during the pre-London open trading on Thursday. The pair seems to follow the broad trend established by the US dollar pullback while easing from the multi-day top. Also weighing on the quote could be the fears that the rivalry between the European Union (EU) and the UK will not end with the latest readiness to resume Brexit talks. Furthermore, GBP/USD traders’ cautious moves ahead of the speech from BOE Governor Andrew Bailey also probe the bulls.

Are we sure of the soft Brexit?

While the news that the UK and the EU are again budging on the Brexit talks, after initially positing for a no-deal scenario, favored the GBP/USD buyers on Wednesday, fears that the ex-neighbors won’t agree over the tough issues erode the earlier optimism. The cautious sentiment takes clues from the comments of EU’s Chief Brexit Negotiator Michel Barnier suggesting, “any deal must respect the sovereignty of the UK and the autonomy of the EU.”

Elsewhere, the BOE’s Deputy Governor Dave Ramsden cited fears of a further hike in the unemployment rate while also suggesting that wage growth could also falter as the pandemic continues, per The Guardian. Additionally, the coronavirus (COVID-19) woes in the UK is increasing day-by-day, which in turn pushes John Edmunds, a member of Scientific Advisory Group for Emergencies (SAGE), to say, “We are going to have to live with this virus for ever more. There is very little chance that it’s going to become eradicated.” On Wednesday, the country marked 26,688 cases with 191 deaths within 28 days of a positive test, as per Reuters.

This pushes the British government to plan COVID-19 'challenge' trials that deliberately infect volunteers in search of a vaccine. Also, the trials stopped by AstraZeneca, as well as Johnson and Johnson, are likely to be resumed.

On the other hand, news from the US Federal Bureau of Investigations (FBI) that Iran and Russia meddled with the American elections renewed geopolitical fears. Also, US House Majority Leader Mitch McConnell’s refrain from respecting President Donald Trump’s push for early stimulus doubt the recent comments from Congress over the much-awaited aid package.

Against this backdrop market’s risk sentiment weakens, which in turn favors the US dollar to recover the previous day’s heavy losses while weighing on the stocks and treasury yields.

Moving on, GBP/USD traders will initially watch over the BOE Governor Bailey after Deputy Governor Ramsden’s bearish statements. Following that, UK Chancellor Rishi Sunak’s speech in the parliament will be closely observed for the hints of a fourth COVID-19 stimulus. Furthermore, news of the US aid package and weekly US jobless claims numbers will also be probing the pair moves.

Technical analysis

A sustained break of an ascending trend line from September 16, amid bullish RSI, direct the GBP/USD buyers to again combat with the 61.8% Fibonacci retracement level of September month’s downside, at 1.3173 now. Meanwhile, a downside break below the previous resistance line, near 1.3115, needs to slip beneath the 1.3100 to revisit the October 12 top near 1.3080 and 50-day SMA near 1.3015.