- GBP/USD extends the previous day’s pullback and moves lower on Tuesday amid a stronger dollar.
- The conflict between Russia and Ukraine weighs on risk sentiment and benefits the safe-haven USD.
- Rising expectations for more BoE rate hikes act as a tailwind for GBP and help limit losses in the pair.
The pair GBP/USD has rebounded strongly from the multi-day low hit early in the European session on Tuesday at 1.3556, although still remains negative on the day below the 1.3600 level.
The pair extended the previous day’s modest pullback from near the monthly high around the 1.3640 area and saw some continuation selling on Tuesday. A new escalation of tensions between Russia and Ukraine triggered a new global wave of risk aversion. This fueled some safe haven flows into the US dollar and proved to be a key factor putting downward pressure on GBP/USD.
the russian president Vladimir Putin upped the ante on Monday and formally recognized two breakaway regions – Donetsk and Luhansk – in eastern Ukraine as independent entities.. Putin later ordered troops into the area to keep the peace and fueled fears of full-blown conflict. This was seen as a key factor affecting global risk sentiment and leading to a sharp drop in stock markets.
Meanwhile, recent geopolitical events forced investors to reduce their expectations of a more aggressive monetary policy by the Fed to combat stubbornly high inflation. This, along with risk-averse monetary flows, dragged US Treasury yields lower and capped USD gains. Aside from this, rising expectations for additional rate hikes from the Bank of England helped limit the slide for GBP/USD.
Therefore, it will be prudent to wait for a continuation of strong selling before positioning for any further declines amid the absence of any relevant economic releases from the UK. Later, at the start of the American session, investors could take cues from the US flash PMI release. The focus, however, will remain on the situation in Ukraine, which will weigh on the USD and could give GBP/USD some directional momentum.
GBP/USD technical levels
Source: Fx Street
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