GBP/USD: Portrays the pre-Fed trading lull above 1.2900

GBP/USD picks up the bids around 1.2935 while heading into the London open on Wednesday. The pair recently recovered as traders shed the previous day’s recovery moves by the US dollar ahead of the key Federal Reserve (Fed) monetary policy meeting. Even so, pessimism surrounding Brexit, coronavirus (COVID-19) wave 2.0 and the UK-China tussle weigh on the pair before the key US event.

Early in Asia, US Senate members disappointed markets with signs of further delays into the much-awaited fiscal package and weighed down the market’s risk tone sentiment. Though, the British pound eased while extending the late-US session losses following comments from the UK PM Boris Johnson and Lothar Wieler, head of the Robert Koch Institute (RKI), suggested the fresh wave of the pandemic.

The move gained strength from downbeat statements of the London School of Economics (LSE) and also from Rain Newton-Smith, chief economist at the Confederation of British Industry (CBI). LSE said, per the BBC, “A Brexit hit is looming for sectors that have emerged relatively unscathed from the COVID-19 pandemic.” On the other hand, the CBI representative warned about the recent recovery in the UK’s Retail Sales figures.

Elsewhere, the UK Express quotes Charles Grant, director of the Centre for European Reform (CER) while saying, “He is optimistic a post-Brexit trade deal will be reached between the UK and EU - despite the current stalemate. The commentator acknowledges that failure is possible, but highlights five reasons why he is confident the two sides will broker a deal before the year is out.” Even so, concerns that UK drivers in Northern Ireland will need a green card to travel into the Republic of Ireland and the European Union from next year defy the optimism.

Furthermore, the Tory government isn’t fed up with further easing as Reuters mentioned that Britain has announced a 500 million-pound ($647 million) fund to help television and film companies restart productions after companies complained they were unable to get insurance because of the coronavirus pandemic. Talking about the politics, British foreign minister Dominic Raab stressed that China needed to rebuild global trust. The UK policymaker also told top Chinese diplomat Wang Yi that Britain will keep eyes on Hong Kong Legislative Council elections in September closely.

Moving forward, global markets may remain less active amid a light calendar and a cautious move before the US Fed’s monetary policy meeting. While market consensus favors no major announcements, the dovish tone of Chairman Jerome Powell could exert further downside pressure on the US dollar.

Read: Fed Preview: Warming up to controlling the yield curve, nudging lawmakers, keeping markets happy

Technical analysis

The pair struggles with the resistance line of a monthly rising channel on the four-hour chart amid overbought RSI conditions. As a result, the sellers are currently targeting the weekly support line, near 1.2850/45, as immediate rest ahead of revisiting July 21 top near 1.2770 and the mid-June top close to 1.2690. Meanwhile, a sustained rise beyond the latest high near 1.2950 will need a clear break of 1.3000 threshold to aim for February 13 high of 1.3069 and March 2020 peak close to 1.3200.