- GBP/USD makes a nice intraday bounce from below the 1.3000 level on Tuesday.
- Lower US bond yields keep USD bulls on the defensive and offer support for the pair.
- Expectations for a more aggressive Fed should limit USD losses and limit the pair’s rise.
The pair GBP/USD has recovered more than 50 pips from the low of the European session and has broken out to a fresh daily high around the 1.3040 region in the last hour.
The pair returned to show some resilience below the psychological level of 1.3000 and made a nice intraday bounce from a four-day low hit earlier this Tuesday. The rally allowed the GBP/USD pair to break a three-day losing streak and reverse a significant portion of the previous day’s losses. The US dollar eased a bit from a new two-year high amid a softer tone around US Treasury yields, which in turn offered some support for the pair.
Apart of this, signs of stability in equity markets further weighed on the safe-haven USD. On the other hand, the British pound was supported by some strength stemming from a rally in the GBP/JPY cross. This was seen as another factor contributing to the GBP/USD’s modest intraday rally. Having said that, any significant hikes still look elusive amid expectations that the Fed will tighten monetary policy at a faster pace.
Indeed, markets seem convinced that the Fed would make multiple 50 basis point rate hikes to combat stubbornly high inflation. Separately, St. Louis President James Bullard said Monday that US central bank should not rule out 75 basis point rate hikes. This should act as a tailwind for US bond yields and limit the dollar’s decline. This, in turn, suggests that the GBP/USD’s attempted recovery could still be seen as a selling opportunity.
Short of any major economic releases from the UK, the price action around the dollar will continue to play a key role in GBP/USD price action. Later, at the start of the American session, investors will take cues from US housing market data and a scheduled speech by Chicago Fed President Charles Evans. This coupled with US bond yields and broader risk sentiment will boost the USD and create some trading opportunities around GBP/USD.
GBP/USD technical levels
Source: Fx Street
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