GBP/USD retreats from two-week tops, flirts with session lows near 1.3885-80 area

• GBP/USD struggled to find acceptance above the 1.3900 mark and witnessed some selling on Monday.
• Brexit jitters, COVID-19 woes turned out to be key factors that exerted some pressure on the major.
• Expectations that the Fed will tighten its policy underpinned the USD and further weighed on the pair.

The GBP/USD pair retreated nearly 30 pips from two-week tops touched during the Asian session and was last seen hovering near the lower end of its intraday trading range, around the 1.3885-80 region.

The GBP/USD pair struggled to find acceptance above the 1.3900 round-figure mark and so far, has failed to capitalize on Friday's strong intraday rally of 150 pips. Renewed Brexit concerns, along with a surge in new COVID-19 cases in the UK acted as a headwind for the British pound and capped gains for the major.

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 suggested that Britain would be obliged to pay €47.5bn (£40.8bn) as part of its post-Brexit arrangements. On the coronavirus front, the UK reported the highest number of infections in over five months.

Adding to this, the UK Vaccines Minister Nadhim Zahawi told BBC TV on Sunday that the government plans to issue guidance that people should still wear masks in many indoor settings. UK Prime Minister Borish Johnson is due to confirm on Monday whether most of the lockdown rules - including the legal requirement for masks - will end on 19 July.

Apart from this, a weaker tone around the US equity futures extended some support to the safe-haven US dollar and further collaborated to exert some pressure on the GBP/USD pair. Apart from this, expectations that the Fed is moving towards tapering its asset purchases sooner than anticipated further underpinned the USD.

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, suggesting that QE tapering discussions could begin in the coming months. Hence, the market focus will remain on the latest US consumer inflation figures due on Tuesday.

This, along with the Fed Chair Jerome Powell's semi-annual congressional testimony on Wednesday and Thursday, will play a key role in determining the next leg of a directional move for the GBP/USD pair. In the meantime, developments surrounding the coronavirus saga might provide some impetus amid absent relevant market-moving economic data.

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