Sterling's current drop looks likely to extend as optimism over its outlook dims and dollar shorts are squeezed by rising U.S. Treasury yields following the Federal Reserve decision.
Sterling stalled at a 1.4250 high on June 1, as the dollar based in late May. Following a period of consolidation, GBP/USD has broken out on the downside, triggered by USD strength after the Fed surprised markets on Wednesday nL2N2NX1EJ.
The UK has experienced a setback in the fight against COVID-19, as the fast-spreading Delta variant nL5N2NY427 caused Prime Minister Boris Johnson to delay a full reopeningnL5N2NX49K after a spike in coronavirus cases nL5N2NY4DV.
Meanwhile, there has been little progress on a solution to the Northern Ireland protocol, as the UK refuses to implement the Brexit deal nL5N2NY1Y4.
A further deterioration in relations with the European Union would be a negative for sterling.
Technically GBP/USD trends south, aided by Wednesday's bearish outside day.
Daily momentum studies, 5, 10 and 21 daily moving averages all slide, which is a strong trending setup.
The 1.4018 lower 21-day Bollinger band - a good indicator of an oversold market - suggests bears should sell strength, not breaks, at current levels.
Initial significant support lies at 1.3959, 50% of the April-June rise.
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