GBP/USD stays below 1.3700 amid risk aversion, UK employment report in focus

GBP/USD drops to 1.3663, staying around Monday’s low of 1.3648, as Asian traders begin Tuesday’s session. In doing so, the cable responds to the fresh risk-off mood after flashing a two-day losing streak. While the coronavirus (COVID-19) conditions seem recovering at home, broad fears of virus variants and a delay in the much-awaited US fiscal stimulus, not to forget pre-data/event cautious sentiment, sour the market mood and heavy the pair.

Latest measures are working…

Having witnessed a slew of disappointment due to the virus variant, the UK government finally had some good news as the figures suggest sustained weakness in the infections as well as the death toll. On Monday, the country reported the lowest cases since mid-December. While conveying the success of heavy vaccinations and lockdown, British Health Secretary Matt Hancock praised the latest measures to flash early positive signs. Though, talks are on the top that the Tory government mulls raising barriers for foreign travellers while also pushing hotels for compulsory quarantine to people coming from ex-UK.

Even so, the market’s sentiment is heavy amid fears of further delay in the US covid aid package. The chatters gained momentum after Senate Democratic Leader Chuck Schumer said, “they will try to pass stimulus in a month, month-and-a-half”. Also favoring the risk-off mood could be the speculations over a lag in COVID-19 vaccines and downbeat expectations from this week’s key events, namely the US Q4 GDP as well as the Fed meeting.

Against this backdrop, Wall Street benchmarks trade mixed while FTSE 100 lost 0.84% by the end of Tuesday’s trading. Further, the US 10-year treasury yields decline six basis points to 1.03%, the lowest since January 07.

Although market players are currently waiting for Moderna’s vaccine announcement to clarify the vaccine’s ability to combat the virus strain, British employment data for December, up for publishing at 07:00 AM GMT, will be the key to watch. Forecasts suggest the headline Unemployment Rate increase from 4.9% to 5.1% for the three months to November while Average Earnings are likely to improve during the stated period.

Given the mixed expectations from the scheduled UK data, GBP/USD will have to rely on the US dollar moves and risk catalysts unless any surprises from the jobs report strongly backs negative interest rate speculations.

Read: UK Jobs Preview: Another positive surprise? GBP/USD could use a shot in the arm

Technical analysis

Although pullback from multi-month high teases GBP/USD sellers, a confluence of 21-day SMA and an ascending trend line from December 21, currently around 1.3615, restricts short-term downside. Meanwhile, upside momentum may regain life beyond 1.3750.