GBP/USD surrenders intraday gains, slide back closer to mid-1.3500s

The GBP/USD pair quickly retreated over 50 pips during the early European session and has now dropped to the lower end of its daily trading range, just above mid-1.3500s.

Following the previous day's rejection slide from the 1.3700 mark, or fresh 32-month tops, the pair regained positive traction on Tuesday amid the emergence of some fresh selling around the US dollar. In fact, the greenback struggled to attract any safe-haven demand and remained depressed near two-and-half-year lows through the first half of the trading action on Tuesday.

Hopes for a strong global economic recovery in 2021 remained supportive of the underlying bullish tone in the financial markets. This, along with the likelihood of more US fiscal stimulus and expectations that the Fed would keep rates lower for a longer period, continued weighing on the safe-haven greenback. This was seen as a key factor lending support to the GBP/USD pair.

Meanwhile, investors remain worried about the continuous surge in new COVID-19 cases and the imposition of third nationwide lockdown in the UK. Adding to this, concerns about the exclusive of the crucial UK services sector from the Brexit agreement might further hold the GBP bulls from placing aggressive bets. This, in turn, kept a lid on any strong gains for the GBP/USD pair.

Apart from this, doubts about the effectiveness of vaccine on the new coronavirus strain from South Africa and uncertainty about the runoff elections in Georgia seemed to have tempered enthusiasm. Voting for the election in Georgia begins later this Tuesday and the outcome of two Senate seats will have an impact on President-elect Joe Biden's ability to pursue his preferred economic policies.

In the absence of any major market-moving economic releases from the UK, it will be prudent to wait for follow-through buying before positioning for the resumption of the GBP/USD pair's recent bullish trend. Meanwhile, the US economic docket highlights the release of ISM Manufacturing PMI. Traders might further take cues from developments surrounding the coronavirus saga.

Technical levels to watch