GBP/USD slides below mid-1.3800s, fresh session lows ahead of US data

• GBP/USD came under some selling pressure after a rather unimpressive UK macro data.
• A subdued USD price action did little to provide any meaningful impetus to the major
• Uncertainty over the Fed’s tapering plan held traders from placing aggressive USD bets.

The GBP/USD pair witnessed some selling during the second half of the European session and dropped to fresh daily lows, around the 1.3840 region.

The pair struggled to capitalize on the previous day's goodish rebound from the 1.3800 mark, or over two-week lows, instead met with some fresh supply on Thursday. The British pound's underperformance was sponsored by disappointing UK macro data, which showed that the UK trade deficit unexpectedly jumped to £11.988 billion in June from £9.601 billion previous.

Adding to this, the UK Office for National Statistics lowered its estimate for the domestic GDP growth in May to 0.6% from an originally reported 0.8% increase. This, to a larger extent, offset better-than-anticipated UK GDP growth figures for the reported month. In fact, Britain's economy grew by a faster-than-expected 1% in June against 0.8% anticipated.

On the other hand, the US dollar lacked any firm directional bias amid uncertainty about the likely timing for policy tightening by the Fed. Signs of moderating inflationary pressure in the US might have eased fears about an early withdrawal of the stimulus by the Fed. This was evident from declining US Treasury bond yields, which kept the US dollar bulls on the defensive.

However, the Fed officials have started to guide the market towards early tapering and higher interest rates as soon as 2022. Kansas City Fed President Esther George noted that the standard for reducing the bond-buying program may have already been met by the current spike in inflation, recent labour market improvements and the expectation for continued strong demand.

Separately, Dallas Fed President Rob Kaplan said that he will press his colleagues to announce a plan to taper bond purchases at the next meeting in late September. This comes on the back of Atlanta Fed President Raphael Bostic and Boston Fed President Eric Rosengren's hawkish comments earlier this week, which continued acting as a tailwind for the greenback.

Meanwhile, the GBP/USD pair has now eroded a major part of its overnight modest recovery gains. The emergence of some selling near a previous strong horizontal support breakpoint, now turned resistance, favours bearish traders. This, in turn, supports prospects for an extension of the recent pullback from the vicinity of the key 1.4000 psychological mark.

Market participants now look forward to the US economic docket, featuring the releases of the Producer Price Index (PPI) and the usual Initial Weekly Jobless Claims. This, along with the US bond yields, might influence the USD price dynamics and allow traders to grab some short-term opportunities around the GBP/USD pair.

Technical levels to watch