• GBP/USD surrenders the initial gains in the Asian trading hours.
  • The US dollar manages to rebound from the sub-4.00 level as risk sentiment sours.
  • Downbeat economic data, Brexit woes continue to strike sterling.

The GBP/USD pair remains subdued in the Asian session, keeping its range below 1.3550.  The pair opened higher and quickly retreated toward the session’s low near 1.3535 compromising nearly 40-pips movement. 

The US Dollar Index (USD), which tracks the performance of the greenback against its six major rivals, trades near 94.00 amid investor’s reduced risk appetite. In the latest development, China’s Evergrande shares trading has been suspended in Hong Kong, which is triggering a fresh wave of fear among investors on the fate of the debt-ridden property giant. Additionally, Beijing's heavy military movement in Taiwan with nearly100 planes threatens the region’s peace.

Furthermore, the upbeat US economic data fuels the inflationary fear that could prompt the Fed to start tapering as soon as November and subsequent rate hikes. Fed’s favorite measure of inflation, the Price Consumption Expenditure (PCE) rose 0.4% in August, as per the data released on Friday. Meanwhile, the US Senate majority leader Chuck Schumer said the target is to pass both an infrastructure bill and a multi-trillion dollar social spending bill in the next month, overcoming divisions in Democrats. This, in turn, firms the case for the US dollar.

On the other hand, the British pound is struggling more with the domestic factors along with the overall deteriorating risk sentiment. The IHS Markit/CIPS UK manufacturing Purchasing Managers Index (PMI) came at 57.1 in September as compared to 60.3 in the previous month. The Brexit saga continues to deter the performance of the cable, the UK’s Minister of State Lord David Frost on Monday threatened to dispense some of the terms of its post-Brexit trade agreement with Northern Ireland, saying they have become too damaging to retain. 

In addition, UK Prime Minister Boris Johnson once again backed the Brexit strategy despite the supply chain crisis. The comments weigh on the sterling's performance.

As for now, traders keep their focus on the US Factory Orders data in a light economic calendar to gauge the market sentiment.
 

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