GBP/USD regains 1.3400 on Brexit optimism ahead of Sue Gray report, US PCE Inflation

• GBP/USD bounces off five-week low amid a sluggish Asian session.
• UK Foreign Secretary Liz Truss eyes significant progress in Brexit talks by February, Dover queues, DUP portray pessimism.
• Report over UK PM Johnson’s future leadership remains delayed with more negative details getting added of late.
• US Q4 Advance GDP came in mixed, Fed’s preferred inflation gauge eyed for fresh impulse.

GBP/USD pierces the 1.3400 threshold to refresh intraday high heading into Friday’s London open as markets pause the USD favor ahead of the Fed’s preferred inflation data. Also supporting the corrective pullback from a multi-day low are the upbeat headlines concerning Brexit and measured optimism over UK politics.

That said, UK’s Truss hoped to fast-track Brexit talks by February with hopes to get the support of pro-British unionists in Northern Ireland as opposed to the current arrangements, per Reuters. The British Brexit negotiator spoke during a visit to Belfast the previous day.

Additionally, a delay in the Sue Gray report also seems to underpin the GBP/USD buyers amid hopes that UK PM Boris Johnson will easily overcome the political challenges. However, his Tory friends keep piling more issues to brace for leadership change, the latest one was the No10 u-turn on National Insurance Hike.

On the contrary, long lines of lorries at the Dover and the Democratic Unionist Party’s (DUP) push to Liz Truss to deliver a solution to Northern Ireland (NI) protocol seems to test the optimists.

Elsewhere, the US dollar eases from the highest levels last seen during July 2020 as traders await US Core PCE Price Index figures for December as they’re considered the Fed’s preferred version of inflation. Markets expect a 4.8% YoY figure versus 4.7% prior.

Read: US PCE Inflation Preview: Dollar rally has more legs to run

On Thursday, the Advance Q4 US GDP, up 6.9% annualized versus 5.5% market consensus and 2.3% prior. On the same line was the US Initial Jobless Claims for the week ended in January 21that came in 206K compared to 260K expected and 290K previous. It should be noted, however, that the US Durable Goods Orders for December dropped by -0.9% for December, below -0.5% market consensus.

It’s worth noting that the mixed performance of the market, portrayed by steady yields and mildly bid stock futures, also probes the US dollar bulls after the heavy run-up in the last few days.

As a result, GBP/USD traders may extend the latest run-up should the UK politics and Brexit flash positive headlines. Though, the expected strength of the US inflation data may challenge the pair buyers.

Technical analysis

GBP/USD rebound eyes 50-DMA and a descending trend line from January 14, respectively around 1.3420 and 1.3470, amid bearish MACD signals and downbeat RSI conditions, not oversold. As a result, the fresh selling may wait for a clear downside break of the horizontal area established since early November, around 1.3350-60.