- A broad-based USD strength continued exerting some pressure around GBP/USD on Tuesday.
- A sustained break below the 1.3900 mark might have shifted the bias in favour of bearish traders.
The USD buying interest picked up pace during the early European session and dragged the GBP/USD pair to one-and-half-week lows, around the 1.3865 region in the last hour.
The pair extended the previous day's rejection slide from the key 1.4000 psychological mark and witnessed some follow-through selling through the first half of the trading action on Tuesday. The downfall was exclusively sponsored by a broad-based US dollar strength amid increasing bets for a relatively faster US economic recovery from the pandemic.
The impressive pace of COVID-19 vaccinations and the progress on a massive US fiscal spending plan has been fueling the reflation trade. The narrative of strong sequential recovery was reinforced by the US ISM Manufacturing PMI, which jumped to a three-year high level of 60.8 in February and was seen as a key factor that continued underpinning the greenback.
Apart from this, a softer risk tone further benefitted the USD's relative safe-haven status and further contributed to the GBP/USD pair's ongoing slide to the lowest level since February 18. The risk-off mood was reinforced by a modest pullback in the US Treasury bond yields, though did little to dent the bullish sentiment surrounding the buck.
Meanwhile, the GBP/USD pair's inability to attract any meaningful buying interest suggests that most of the positive news is fully priced in the market. Adding to this, sustained weakness below the 1.3900 mark might have already shifted the bias in favour of bearish traders and supports prospects for an extension of the corrective decline.
Hence, some follow-through weakness, towards the next relevant support near the 1.3815 region, now looks a distinct possibility. There isn't any major market-moving economic data due for release on Tuesday, either from the UK or the US, leaving the GBP/USD pair at the mercy of the USD price dynamics and the broader market risk sentiment.
Technical levels to watch
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