- GBP/USD witnesses a bearish opening gap on Monday amid resurgent USD demand.
- The worsening situation in Ukraine provides a strong boost to the safe-haven USD.
- A combination of factors caps the USD and helps reduce intraday losses for the pair.
The pair GBP/USD has recovered a significant part of its intraday losses and rises again near the 1.3400 region during the European session on Monday.
The pair opened with a bearish gap on the first day of a new week in the middle of a broad US dollar strength, reinforced by the events of the weekend around the Ukraine crisis. Western nations imposed new sanctions on Russia for its invasion of Ukraine, including the blocking of some banks from the SWIFT international payment system.
President Vladimir Putin upped his ante and put the nuclear armed forces on high alert on Sunday, fueling fears about a new escalation of the conflict. This, in turn, triggered a new wave of risk aversion, which forced investors to take refuge in traditional safe-haven assets and benefited the dollar.
Having said that, optimism about the negotiations between Ukraine and Russiawhich would apparently start on Monday at the border between Belarus and Ukraine, led to some stability in financial markets. This, coupled with diminishing odds of a 50 basis point Fed rate hike move in March, capped USD gains and offered GBP/USD support.
The worsening of the situation in Ukraine seems to have dashed hopes of a more aggressive policy response from the Fed to combat stubbornly high inflation. Apart from this, the global flight to safety triggered a sharp drop in US Treasury yields and acted as a headwind for the USD, at least for the time being.
In the absence of any major economic releases on Monday from either the UK or the US, the market will focus on new developments surrounding the Russia-Ukraine conflict. This, coupled with US bond yields, will influence USD price dynamics and could create short-term trading opportunities around the GBP/USD pair.
GBP/USD technical levels
Source: Fx Street
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