GBP/USD dives to session lows, around 1.3900 mark amid notable USD demand

• GBP/USD witnessed a turnaround from the 1.4000 mark amid resurgent USD demand.
• Rallying US bond yields underpinned the USD and exerted some pressure on the major.
• Mostly softer UK macro data weighed on the sterling and contributed to the selling bias.

The GBP/USD pair refreshed daily lows in the last hour, with bears now eyeing sustained weakness below the 1.3900 round-figure mark.

The pair struggled to capitalize on this week's strong positive move of around 200 pips and faced rejection near the key 1.4000 psychological mark amid resurgent US dollar demand. The US Treasury bond yields resumed their climb on the last trading day of the week and assisted the USD to regain positive traction.

Investors remain optimistic that a massive $1.9 trillion stimulus pandemic relief package would spur economic activity in the US. The reflation trade again fueled concerns about rising inflationary pressure and pushed the yield on the benchmark 10-year US bond back above 1.6%, closer to over one-year tops touched last week.

Meanwhile, another sell-off in the US fixed income market is starting to unnerve investors. This was evident from a sharp pullback in the US equity markets, which provided an additional boost to the greenback's relative safe-haven status and contributed to the intraday selling pressure around the GBP/USD pair.

Apart from this, the British pound was further pressured by Friday's mostly softer UK macro releases. The Office for National Statistics reported that the economy shrank 2.9% MoM in January. Adding to this, the UK Industrial and Manufacturing Production fell by 1.5% and 2.3%, respectively during the reported month.

The downfall marked the first day of a negative move in the previous four and forced the GBP/USD pair to erase the previous day's positive move. Some follow-through selling below the 1.3900 mark will shift the near-term bias back in favour of bearish traders and set the stage for a further intraday downfall.

Friday's US economic docket features the second-tier releases of the Producer Price Index and the preliminary Michigan Consumer Sentiment Index. The data, along with the US bond yields and the broader market risk sentiment, will influence the USD price dynamics and produce some trading opportunities around the GBP/USD pair.

Technical levels to watch