A stronger-than-expected U.S. jobs report could be the trigger for a sharp GBP/USD drop after Thursday's jump in the dollar and Treasury yields despite dovish comments from Federal Reserve Chair Powell nL2N2L2262.
Rising tensions between the UK and European Union add to the risks for sterling.
Morgan Stanley's FX position tracker showed the USD remains the largest short position and GBP modestly long as of March 1, so GBP/USD is vulnerable if markets unwind.
Sterling strength is based around the UK's fast COVID-19 vaccine rollout, which continues, and post-Brexit optimism, which may be faltering.
The UK's unilateral extension of the grace period for checks on food imports to Northern Ireland nL5N2L13ZA has hurt ties with the EU, where lawmakers have stalled a vote to ratify the Brexit trade deal in protest nL2N2L21IJ.
The lack of trust will undermine upcoming talks on the financial services sector, which is key for the UK and sterling nL2N2L20KQnL2N2L13SN.
Britain has announced it will lifts more curbs on 'dark' trading nL5N2L26NJ, which will be very unpopular with the EU, as it could be seen as a regulatory race to the bottom.
Thursday's GBP/USD close below the 1.3920 21-day moving average, a base during the 2021 uptrend, is a bearish signal.
A break of 1.3846, 50% of the 2021 rise, would initially target 1.3752, the 61.8% retracement, followed by the year's 1.3451 low.
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