GBP/USD drops to 1.3900 neighbourhood, fresh session lows

• GBP/USD witnessed some selling on Friday and extended the overnight pullback from weekly tops.
• A generally softer risk tone provided a modest lift to the safe-haven USD and exerted some pressure.
• UK political noise, the Scottish elections risk weighed on the GBP and contributed to the selling bias.

The GBP/USD pair refreshed daily lows during the early European session, with bears now awaiting a sustained break below the 1.3900 round-figure mark.

The pair extended the previous day's retracement slide from over one-week tops, around the 1.3975 region and witnessed some selling on the last trading day of the week. This marked the first day of a negative move in the previous six trading sessions and was sponsored by a modest US dollar strength.

As investors looked past the Fed's dovish message, the overnight strong pickup in the US Treasury bond yields assisted the USD to rebound from the lowest level since February 26. Apart from this, a generally softer tone around the equity markets provided an additional lift to the safe-haven USD.

The British pound was further undermined by the risk posed by the Scottish elections next week. Polls are pointing to a supermajority for pro-independence parties in Scotland's parliament, which might intensify pressure for a referendum on independence and act as a headwind for the sterling.

This comes on the back of controversy over funding arrangement for the UK Prime Minister Boris Johnson's official apartment. This, in turn, largely offset the optimism over a strong recovery in the UK – bolstered by the easing of COVID-19 restriction and kept the GBP bulls on the defensive.

Meanwhile, the upside for the USD is likely to remain limited amid firming expectations that the Fed will keep interest rates near zero levels for a longer period. This, in turn, makes it prudent to wait for some follow-through selling before positioning for any meaningful downside for the GBP/USD pair.

There isn't any major market-moving economic data due for release from the UK, leaving the GBP/USD pair at the mercy of the USD price dynamics. Later during the early North American session, traders might take cues from the US data – March Personal Income/Spending data, Core PCE Price Index and revised Michigan Consumer Sentiment Index for April.

Technical levels to watch