GBP/USD retreats over 50 pips from daily tops, still comfortable above mid-1.2800s

The GBP/USD pair quickly retreated around 50-60 pips during the early North American session, albeit has still managed to hold with modest daily gains, around the 1.2880-85 region.

As investors digested the recent developments surrounding the Brexit saga, the pair gained traction for the second consecutive session on Tuesday and recovered further from seven-week lows. The positive momentum was supported by some heavy intraday selling around the US dollar and got an additional boost following the release of mostly upbeat UK employment details.

The latest optimism over a potential vaccine for the highly contagious coronavirus disease remained supportive of the upbeat market mood. This was evident from a bullish trading sentiment around the global equity markets, which undermined the greenback's relative safe-haven status and remained supportive of the strong bid tone surrounding the GBP/USD pair.

The British pound was further supported by the UK macro data, which showed that the number of people claiming unemployment-related benefits came in at 73.7K as against 100K expected. Adding to this, the previous month's reading was also revised down to 69.9K from 94.4K reported earlier, while the unemployment rate during the three months to July edged higher to 4.1% from 3.9%.

From the US, the Empire State Manufacturing Index climbed more than expected to 17 in September as compared to 3.7 previous. The stronger reading provided some respite to the USD bulls and helped offset the disappointing release of the US Industrial Production figures, which, in turn, was seen as a key factor that kept a lid on any further gains for the GBP/USD pair.

This comes amid growing market fears that Britain might crash out of the EU at the end of the transition period and prompted some fresh selling at higher levels. It is worth reporting that an initial parliamentary vote on the UK’s controversial bill, which violates the Brexit agreement with the EU, cleared its first hurdle in the House of Commons on Tuesday.

The EU has already warned that the passage of the legislation would lead to a collapse in negotiations. This increases the possibility of a no-deal Brexit and thus, warrants some caution before confirming that the recent sharp pullback from the vicinity of the key 1.3500 psychological mark is already over and positioning for any meaningful appreciating move.

Investors might also refrain from placing any aggressive bets ahead of this week's key central bank events. The FOMC will announce its monetary policy decision on Wednesday. This will be followed by the BoE's policy update on Thursday, which should assist traders to determine the next leg of a directional move for the GBP/USD pair.

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