GBP/USD wobbles around 1.3800 on Brexit, inflation chatters, UK Retail Sales, PMIs eyed

• GBP/USD struggles to extend pullback from monthly high.
• UK PM Johnson ready to compromise Brexit, NI protocol terms, British covid infections jump.
• Inflation expectations jump to multi-year high in the UK, US.
• UK Retail Sales, PMI can offer immediate direction ahead of the US activity data.

GBP/USD retreats to 1.3790 following its first negative daily close in three. In doing so, the cable pair fades the late Thursday’s bounce off 1.3776 during Friday’s Asian session.

The reason could be linked to the mixed headlines concerning Brexit, the UK’s coronavirus conditions and the broad US dollar strength due to the reflation fears in the US and Britain.

Starting with Brexit, UK PM Boris Johnson finally shows readiness to compromise terms relating to the Northern Ireland (NI) protocol and Brexit to overcome the deadlock in the key talks. The Times said, “Boris Johnson would be prepared to accept a limited role for the European Court of Justice in a bid to unlock a deal with Brussels over the Northern Ireland protocol, government figures say.”

Further, the UK reports the first above 50,000 infections, 52,009 per The Guardian, since July according to the latest government release. On the same line were fears of a more infectious variant of the coronavirus than Delta, namely AY.4.2 per the Researches Kamil Khafizov, said The Guardian.

Elsewhere, the UK’s GfK Consumer Confidence dropped to the lowest since February with -17, versus -13 prior. Details also suggest that the consumer inflation expectations have jumped to the record since the survey began in 1985.

On the other hand, the US inflation expectations, per the 10-year breakeven inflation rate per the St. Louis Federal Reserve (FRED) data, also rally to the highest since 2012 and underpin the US dollar’s safe-haven demand. It’s worth noting that Federal Reserve Governor Christopher Waller said on Thursday that the next few months will be critical to see whether inflation is transitory, as reported by Reuters. Before that, Fed Governor Randal Quarles and Cleveland Fed President Loretta Mester highlighted inflation fears and favored the US Treasury yields to refresh five-month high around 1.70%, up 1.2 basis points (bps) near 1.69% by the press time.

The risk-off mood battles the Brexit optimism and the recent headlines suggesting likely relief for China’s Evergrande and US President Joe Biden’s hints for nearness to the stimulus.

Against this backdrop, the S&P 500 Futures drop 0.24% intraday while the US Dollar Index (DXY) remains firmer around 93.75 at the latest.

Looking forward, GBP/USD traders will pay close attention to the UK Retail Sales for September, expected -0.4% YoY versus 0.0% prior, ahead of the preliminary readings of the British PMIs for October. Given the Bank of England’s (BOE) hawkish signals, versus recently flashed softer UK inflation data, firmer Retail Sales and PMIs may help the GBP/USD to remain strong. Though, the US PMIs will be more important as the US 10-year Treasury yields flirt with the crucial 1.70% level, a break above which has propelled the DXY in the past.

Technical analysis

GBP/USD bears can remain hopeful unless the quote crosses the 1.3850 resistance confluence, comprising 200-DMA and a descending trend line from July 30.