GBP/USD remains depressed below mid-1.3700s

The GBP/USD pair remained on the defensive heading into the European session and was last seen hovering near daily lows, around the 1.3740-35 region.

The pair struggled to capitalize on Friday's modest bounce from the 1.3720 region and met with some fresh supply on the first day of a new trading week. This marked the second consecutive day of a negative move and was sponsored by a combination of factors.

The EU-UK impasse over the Northern Ireland Protocol, along with COVID-19 jitters continued acting as a headwind for the British pound. It is worth recalling that the EU rejected the UK's demand to rewrite a deal overseeing problematic post-Brexit trade involving Northern Ireland.

Moreover, the COVID-19 situation in Britain has been worsening over the last few weeks amid the spread of the highly contagious Delta variant of the virus. This, to a larger extent, overshadowed the UK government's decision last week to lift coronavirus restrictions in the UK.

Meanwhile, worries about the economic fallout from the coronavirus weighed on investors' sentiment. This was evident from a generally weaker tone around the equity markets, which benefitted the US dollar's relative safe-haven status against its British counterpart.

That said, sliding US Treasury bond yields held the USD bulls from placing any aggressive bets. In the absence of any major market-moving economic releases, either from the UK or the US, this might help limit any deeper losses for the GBP/USD pair, at least for the time being.

Traders might also refrain from placing any aggressive bets, rather prefer to wait on the sidelines ahead of this week's key event risk – the FOMC monetary policy meeting. The outcome will influence the USD in the near term and provide a fresh directional impetus to the GBP/USD pair.

Technical levels to watch