GBP/USD teases bears around 1.3550, Brexit talks, UK Q4 GDP eyed

GBP/USD pares intraday losses around 1.3550 but keeps the previous day’s pullback from a multi-day high during Friday’s Asian session.

The cable pair cheered US dollar weakness to rise to the highest levels since January 20 but strong US Treasury yields and cautious sentiment ahead of the key data/events seems to have weighed on the quote of late. Also on the negative side were recently upbeat comments from the Fed speakers and political drama in the UK.

Former Tory Prime Minister (PM) Sir John Major recently criticized the current PM Boris Johnson’s ‘Partygate’ scandal while condemning him as “a lawbreaker whose disregard for honesty and ministerial standards risks undermining the UK’s long-term democratic future,” per The Guardian. Following that, UK PM Johnson terms these claims as ‘demonstrably untrue’.

On the other hand, chatters go wild that the UK will propose new terms to overcome the deadlock relating to the Northern Ireland (NI) border. “Liz Truss, UK foreign secretary, is to make new proposals to break the deadlock over post-Brexit trading arrangements in Northern Ireland on Friday, saying that resolving the row with the EU was ‘an absolute priority,’” said the Financial Times (FT). It’s worth noting that UK’s Truss will meet European Commission vice-president Maros Sefcovic for Brexit discussions on Friday.

Elsewhere, the UK dashes more virus-led activity restrictions with easing covid figures. “Case numbers in the last seven days have fallen 25% compared with the previous seven days, while deaths have fallen 20% on the same measure,” said Reuters.

It’s worth noting that the markets turned volatile after the US inflation numbers and the same pushed the Fed speakers to reiterate their hawkish bias, which in turn propelled the US Treasury yields and helped the US Dollar to stay firmer.

US bond coupons refreshed multi-day high the previous day after the US Consumer Price Index (CPI) for January rallied to a nearly five-decade high with a 7.5% YoY figure, versus 7.3% expected and 7.0% prior.

That said, St. Louis Fed President James Bullard went a step farther while supporting 100 bps rate hikes by July and for the balance sheet reduction to start in the second quarter. However, Federal Reserve Bank of Richmond President Thomas Barkin said that the US economy will likely return past the pre-covid trend this quarter. Though, Fed’s Barkin wasn’t as hawkish as Bullard.

Other than the aforementioned catalysts, escalating fears of a Russia-Ukraine war and the US-China trade tussles also weigh on the GBP/USD prices, by way of USD’s safe-haven appeal.

Against this backdrop, the US 10-year Treasury yields remain firmer around the highest levels since July 2019, up one basis point at 2.035% by the press time. However, the S&P 500 Future drop 0.50% at the latest.

Looking forward, first readings of the UK’s fourth quarter (Q4) GDP will be crucial for GBP/USD prices as a firmer print will justify the Bank of England’s (BOE) recent rate hikes, defending them from allegations of late performance. Market expectations suggest headline numbers to remain unchanged at 1.1% QoQ while easing to 6.4% YoY versus 6.8% prior. Following that, the preliminary readings of the US Michigan Consumer Sentiment Index for February, expected 67.5 versus 67.2 prior, may entertain the pair traders.

Technical analysis

A monthly resistance line near 1.3580 restricts short-term GBP/USD upside whereas the 100-DMA challenges the bears around 1.3500. However, MACD and RSI have recently pushed back the bulls.