GBP/USD bounces off lows, flat-lined below 1.3875-80 supply zone

• A combination of factors helped limit any meaningful slide for the GBP/USD pair.
• Declining COVID-19 cases in the UK and BoE's stance underpinned the sterling.
• Uncertainty about the Fed’s tapering plan kept the USD bulls on the defensive.

The GBP/USD pair reversed an early European session dip to the 1.3840-35 region and quickly recovered around 25-30 pips in the last hour. The pair was last seen trading in the neutral territory, around the 1.3860-65 region, just below daily swing highs.

The pair struggled to capitalize on Friday's goodish rebound from sub-1.3800 levels, or two-and-half-week lows and the upside, so far, remain capped near the 1.3875-80 supply zone. Worries about the potential economic fallout from the Delta variant of the coronavirus continued weighing on investors' sentiment. This, in turn, extended some support to the safe-haven US dollar and exerted pressure on the GBP/USD pair.

That said, a combination of factors acted as a tailwind for the major and helped limit the downside. The British pound remained supported by the declining trend of new COVID-19 cases in Britain and the end of pandemic-related restrictions. Apart from this, the Bank of England's hints about modest tightening extended some additional support to the sterling. It is worth recalling that the BoE raised its inflation forecast at the end of the August policy meeting and endorsed market expectations for a rate hike in 2020.

On the other hand, investors now seemed to have scaled back their bets for an early policy tightening by the Fed amid signs of easing inflationary pressure in the US and a slump in consumer confidence. This was evident from the ongoing decline in the US Treasury bond yields, which kept the USD bulls on the defensive, which, in turn, assisted the GBP/USD pair to attract some dip-buying near the 1.3840-35 region.

There isn't any major market-moving economic data due for release on Monday, either from the UK or the US. Hence, the focus will remain on the US Retail Sales figures and Fed Chair Jerome Powell's speech on Tuesday. Apart from this, the FOMC meeting minutes on Wednesday will play a key role in influencing the USD price dynamics. This should assist investors to determine the next leg of a directional move for the GBP/USD pair.

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