GBP/USD retreats below 1.3900 as reflation fears stay strong ahead of NFP

• GBP/USD fades corrective pullback as bears attack weekly low.
• Powell tried to soothe pairs from Treasury yield rally but situations worsened afterward.
• EU-UK raw over NI border continues, US-Britain eyes to solve trade problems, MHRA to fast-track vaccines for covid variants.
• US NFP, stimulus headlines and Brussels-London Brexit tussle become the key.

GBP/USD eases to 1.3883, down 0.05% intraday, while heading into Friday’s London open. In doing so, the cable respects the broad US dollar strength amid a surge in the US Treasury yields. Also challenging the quote could be the EU-UK tussle over Northern Ireland (NI) border. Though, the bears are cautious near the weekly low with eyes on the US Nonfarm Payrolls (NFP).

Powell’s failures to placate bond bears joined the likes of the ECB policymakers and propelled the US 10-year Treasury yields to the highest since February 2020 afterward. The reason for the run-up could be traced from expectations of more fund inflow due to the UK and the UK stimulus.

Elsewhere, the UK warned the European Union (EU) to solve the trade jitters as soon as possible after the bloc raised concerns over Britain’s trade treatment of Northern Ireland. In response, the European Parliament has declined to set a date to ratify the Brexit trade deal, said Sky News. Brussels term the UK’s move over NI as against the Brexit deal but Tories reject the criticism.

In contrast to the EU, the UK tries to resolve trade tussles with the US after America agreed to a four-month suspension of retaliatory tariffs imposed on British Scotch over a long-running aircraft subsidy problem, with both sides pledging to use the time to resolve the dispute, said Reuters.

On a different page, the UK’s drug regulator, Medicines and Healthcare Products Regulatory Agency (MHRA) showed readiness to fast-track the approval for vaccines relating to the covid variants and offered another boost to vaccine optimism. However, challenges to the UK’s tax hike plans, as cited by the British think tank Resolution Foundation, weigh on the quote.

Against this backdrop, US 10-year Treasury yields rise to the fresh high since February 2020, currently around 1.575% whereas stock futures in the US and the UK are mildly offered.

Looking forward, global traders will keep eye on the US stimulus updates from the Senate while waiting for the February jobs report. Also important will be how the EU and the UK manage to overcome Brexit differences as well as spread vaccine optimism. Amid all these plays, GBP/USD is likely to remain depressed unless the Treasury yields step back.

Read: Nonfarm Payrolls Preview: Dollar booster? Three expectation downers pave way for upside surprise

Technical analysis

Given the downward sloping RSI line, GBP/USD is ready to refresh the weekly low and extend the latest declines towards an ascending support line from December 21, 2020, at 1.3807 now. Meanwhile, pullback moves not only need to cross the 21-day SMA level of 1.3920 but should also clear the 1.3990 level comprising 10-day SMA on a daily closing to recall the buyers.