GBP/USD retreats further from two-week tops, slides below mid-1.3800s

• A combination of factors prompted some fresh selling around GBP/USD on Monday.
• COVID-19/Brexit jitters acted as a headwind for the sterling amid renewed USD strength.
• The market focus remains on this week’s key macro data and Fed Chair Powell’s testimony.

The GBP/USD pair extended its intraday descent through the mid-European session and dropped to fresh daily lows, around the 1.3840 region in the last hour.

The pair struggled to capitalize on Friday's strong rally of over 150 pips, or find acceptance above the 1.3900 round-figure mark and met with some fresh supply on the first day of a new week. A steady increase in COVID-19 cases and related hospitalizations in Britain might have jeopardized the UK government's plan to end most of the coronavirus restrictions on July 19. This, along with fresh Brexit jitters, acted as a headwind for the British pound.

In the latest Brexit-related developments, Brussels and London were locked in a dispute over the size of the UK’s Brexit bill. The EU confirmed on Friday that Britain is liable to pay €47.5bn (£40.8bn) to the Union as part of its post-Brexit arrangements and that the calculation is final. Apart from this, the emergence of some fresh buying around the US dollar exerted some additional downward pressure on the GBP/USD pair and contributed to the intraday decline.

Meanwhile, concerns about the economic fallout from the spread of the highly contagious Delta variant of the coronavirus continued weighing on investors' sentiment. This was evident from a generally weaker tone around the equity markets, which benefitted the US dollar's relative safe-haven status. Apart from this, expectations that the Fed was moving towards tightening its monetary policy stance sooner further underpinned the greenback.

It is worth recalling that the June FOMC meeting minutes released last Wednesday revealed that Fed officials agreed on the need to be ready to act if inflation or other risks materialize. Hence, the market focus will remain on the latest US consumer inflation figures, due on Tuesday. Apart from this, Fed Chair Jerome Powell's semi-annual congressional testimony on Wednesday and Thursday will be looked upon for clues about the US central bank's policy outlook.

This will play a key role in influencing the near-term USD price dynamics. Apart from this, the monthly jobs report and inflation figures from the UK should assist investors to determine the near-term trajectory for the GBP/USD pair. In the meantime, developments surrounding the coronavirus saga might assist traders to grab some short-term opportunities amid absent relevant market-moving economic releases, either from the UK or the US on Monday.

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