- GBP/USD struggled to maintain gains at the two-day highat1.3670.
- A mild USD bounce pressurised GBP/USD.
- Disappointing US ADP report dampened USD recovery attempts ahead of the FOMC minutes.
GBP/USD eased back 70 pips from session high to 1.3600 before rebounding to current levels of 1.3625-30.
The British pound sold off after UK Prime Minister Boris Johnson said that the ending of lockdown will be a slow process. The UK is in its third nationwide lockdown which is in place at least until February 15.
The comments added to concerns about the potential economic fallout from tighter lockdown conditions raising the prospects for additional BoE monetary easing.
The US dollar saw a mild rebound from 2.5 year low, but it lacked conviction. Expectations of a Democratic win in the US Senate runoff elections in Georgia have raised the probability of additional US fiscal stimulus.
This, combined with the Fed expecting to keep interest rates lower for a longer period, could keep USD bulls on the side-lines. A weaker than forecast ADP report had little impact on the USD.
Investors will now look to the release of the latest FOMC meeting minutes for clues about the Fed’s policy outlook, which will drive the USD near term.