GBP/USD flirts with session lows, around 1.3870-65 region amid stronger USD

• A modest pickup in the USD demand prompted some selling around GBP/USD on Wednesday.
• The overnight surge in the US bond yields extended some support to the USD ahead of FOMC.
• The upbeat UK economic outlook might continue to underpin the GBP and help limit losses.

The GBP/USD pair remained depressed heading into the European session and was last seen hovering near daily lows, around the 1.3870 region.

Having struggled to find acceptance above the 1.3900 mark, the pair witnessed a modest pullback on Wednesday and for now, seems to have snapped three consecutive days of the winning streak. The US dollar moved higher in tandem with the overnight strong pickup in the US Treasury bond yields and recovered further from multi-week lows touched earlier this week. This, in turn, was seen as a key factor that prompted some selling around the GBP/USD pair.

As the two-day FOMC meeting got underway on Tuesday, upbeat US economic data pushed the yield on the benchmark 10-year US government bond back above the 1.60% threshold. In fact, the Conference Board's US Consumer Confidence Index jumped to pre-pandemic highs and rose to 121.7 in April from the 109.0 previous. The USD uptick could further be attributed to some repositioning trade ahead of the key event risk – the latest FOMC monetary policy decision.

The US central bank is widely expected to keep its monetary policy settings unchanged. That said, rising inflation expectations might force the Fed to start laying the groundwork for a future policy tightening. Hence, the key focus will be on the accompanying monetary policy statement. This, along with the Fed Chair Jerome Powell's comments will play a key role in influencing the USD price dynamics and provide a fresh directional impetus to the GBP/USD pair.

Meanwhile, the downside is likely to remain limited, at least for the time being, amid optimism over the rapid rollout of coronavirus vaccines and the continuous decline in cases in the UK. The UK vaccine minister confirmed on Tuesday that 25% of all adults have now been fully vaccinated, while fell to the lowest level since September. This bodes well with the UK Prime Minister Boris Johnson's plan for the gradual reopening of the economy.

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