GBP/USD regains 1.3450, pares losses around yearly low ahead of UK GDP

• GBP/USD pares weekly losses, picks up bids of late.
• US policymakers avoid government shutdown, underpinning risk-on mood, USD pullback.
• UK-France against jostle over fishing rights, British covid infections rise, death toll ease.
• UK Q2 GDP may confirm 22.2% initial forecast on YoY but can drop by -1.5% QoQ.

GBP/USD tracks the market’s consolidation mood while picking up bids to refresh intraday high near 1.3450, up 0.17% on a day heading into Thursday’s London open. In doing so, the cable pair bounces off the yearly low, flashed the previous day, ahead of the final Q2 GDP for the UK.

Market sentiment improves as the US policymakers manage to avoid the government shutdown with stop-gap funding. Also on the positive side is the news of AstraZeneca’s covid vaccine showing 74% efficacy in the large US trial seems to have underpinned the latest hopes of overcoming the Delta covid crisis.

As the cautious optimism drags the US 10-year Treasury yields and the US Dollar Index (DXY) from the multi-day top, S&P 500 Futures extends Wednesday’s rebound from a weekly low, up 0.50% intraday by the press time.

Even so, traders remain cautious as the real battle over the US infrastructure spending bill and extension of the debt limit is yet to be won in the House. Also, the Fed's tapering woes and fears that China's power cut issues will join the Evergrande saga to drown the world’s second-largest economy back towards the pandemic-era economic performance question the risk-on mood.

At home, France warned the UK of blocking the Channel Tunnel in the Brexit license dispute, per Reuters. Also challenging is the food crisis conditions and likely hardships as the UK aid package is about to end, as well as the labor shortage mounts. Furthermore, a gradual increase in the British COVID-19 cases battles the slow grind to the south in the virus-led deaths to challenge the GBP/USD traders. “UK records 36,722 new cases and 150 more coronavirus-related deaths, versus 34,526 infections and 167 fatalities reported on Tuesday, while 34,460 cases and 166 deaths were announced this time last week, per Sky News.

While the mixed concerns allow consolidation of the GBP/USD prices, traders will pay more attention to the final reading of the Q2 UK GDP for fresh impulse. Forecasts suggest the YoY figure is likely to confirm 22.2% initial estimation whereas the QoQ figure may drop to -1.5% versus +4.8% prior and can recall the GBP/USD sellers. Though, risk catalysts, including US politics, China and Evergrande news, not to forget Fed tapering concerns, are more important to follow for fresh impulse.

Technical analysis

Although August-September 2020 levels around 1.3400 restrict the immediate downside of the GBP/USD prices, the previous support line from April 2021 around 1.3500 challenges recovery moves.