GBP/USD bears challenge 1.3800 mark amid broad-based USD strength

• A strong pickup in the USD demand prompted some follow-through selling around GBP/USD.
• Hawkish Fed expectations, the recent spike in the US bond yields acted as a tailwind for the USD.
• The market focus now shifts to this week’s release of the US CPI and monthly Retail Sales figures.

The GBP/USD pair refreshed daily lows during the early North American session, with bears now looking to extend the downward trajectory further below the 1.3800 mark.

The pair extended Friday's sharp intraday retracement slide from the vicinity of monthly tops and witnessed some follow-through selling on the first day of a new trading week. The US dollar jumped back closer to last week's swing highs amid expectations for an imminent Fed taper announcement. This, in turn, was seen as a key factor that exerted heavy downward pressure on the GBP/USD pair.

Despite the dismal US jobs report for August and a surge in new COVID-19 cases, investors seem convinced that the Fed would begin rolling back its massive pandemic-era stimulus later this year. The market speculations were reinforced by Philadelphia Fed President Patrick Harker's comments on Monday, who joined a chorus of policymakers keen to trim $120 billion in monthly bond purchases.

This, along with the recent spike in the US Treasury bond yields, continued acting as a tailwind for the greenback. In fact, the yield on the benchmark 10-year US government bond shot closer to the 1.35% threshold on Friday following the release of the US Producer Price Index (PPI). The PPI recorded the largest gain since November 2010 and indicated that higher inflation could persist for some time.

Hence, the market focus now shifts to the latest US consumer inflation figures, due for release on Tuesday. Apart from this, the US monthly Retail Sales figures later in the week might influence the USD price dynamics ahead of the FOMC meeting on September 21-21. Nevertheless, the fundamental backdrop favours USD bulls and supports prospects for additional losses for the GBP/USD pair.

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