GBP/USD: Softer USD cover Brexit wounds near 1.3800, focus on US Core PCE Inflation

• GBP/USD grinds higher following the biggest daily jump in over a week.
• France detains UK ships, Britain summons French ambassador with readiness to retaliate.
• Softer US GDP, ECB announcements dragged down USD despite firmer Treasury yields.
• Risk catalysts can entertain ahead of Fed’s preferred inflation gauge’s release.

GBP/USD reacts to Brexit jitters with a cold heart, despite easing a bit from weekly top to 1.3800 by the press time of the initial Asian session on Friday. That being said, the cable pair seems to cheer the US dollar weakness amid risk-on mood.

“A British trawler has been seized by France and another has been fined, amid an escalating row over post-Brexit fishing rights,” said the BBC late Thursday to mark the fresh Brexit drama as the policymakers jostle over Article 16. Following that, an update showed that the UK summoned the French ambassador over the issue while Sky News reported Britain’s readiness to clash with the European Union (EU) over fallout from the key Northern Ireland (NI) protocol.

Read: Brexit saga continues and risk for GBP amount as traders brace for major clash

Other than the Brexit drama, the recent jump in the UK’s coronavirus cases and the covid-led fatalities also challenge the GBP/USD buyers. Britain registered the highest covid numbers and death toll since March before the figures eased on Thursday to 39,842 and 165 respectively. Even so, the UK removes the last seven countries from its travel red list.

UK Chancellor Rishi Sunak’s multi-billion Pound worth of budget 2021 and hints to taper the bond issuance, which indirectly signal the Bank of England’s (BOE) hawkish move, seems to play a distant role in the GBP/USD upside.

More importantly, the heaviest daily fall in 12 days by the US Dollar Index (DXY) could be linked to the cable pair’s run-up. The greenback gauge dropped the most since October 13 the previous day after US Q3 GDP slipped below 2.7% forecast to 2.0%, much lower than 6.7% prior. The softer GDP growth pushes the Fed to slow down on its monetary policy normalization rush.

It should be observed that the European Central Bank’s (ECB) hint to start tapering the monthly bond purchases and the PEPP (that’s the pandemic emergency purchase program) will end next March propelled the Euro and weighed down the USD. The regional central bank left monetary policy unchanged, as expected, with refinancing rate at 0.0% and deposit rates at -0.5%.

Amid these plays, Wall Street managed to recover Wednesday’s losses on Thursday while the US 10-year Treasury yields rose 4.9 basis points (bps) to 1.578% by the end of Thursday’s North American session.

Looking forward, Brexit, tapering and inflation headlines remain hot to determine near-term GBP/USD moves and hence today’s US Core PCE Inflation data for October, Fed’s favorite price pressure indicator will be important to watch. The Core Personal Consumption Expenditures (PCE) - Price Index for September is likely to ease to 0.2% from 0.3% prior on the MoM basis.

Read: Personal Consumption Expenditure Price Index September Preview: Transitory inflation becomes permanent

Technical analysis

GBP/USD rebounds from 50-DMA, around 1.3710 by the press time, to portray the previous day’s upside moves, which in turn joins bullish MACD signals and firmer RSI to direct the quote towards 200-DMA hurdle surrounding 1.3855.