- GBP/USD moves higher on Tuesday amid subdued demand for the dollar, though it lacks bullish conviction.
- China’s issues with COVID-19 and geopolitical risks should limit any significant drop in the USD.
- A bleak outlook for the UK economy is weighing on sterling and helping to constrain the pair.
The pair GBP/USD It struggles to capitalize on its modest intraday gains and pulls back a few pips from the daily high of 1.1864, though it lacks continuation. The pair clings to gains around the 1.1850 area and remains at the mercy of the price dynamics of the US dollar.
The dollar index, which measures the performance of the dollar against a basket of currencies, has pulled back from the one-week highs reached on Monday, acting as a tailwind for GBP/USD. Apart of this, Expectations that the Bank of England will continue to raise rates to combat persistent inflation offer additional support to the pound.. That being said, a significant rally looks unlikely, which warrants some caution before entering aggressively bullish positions on the British currency.
A gloomy outlook for the UK economy could continue to weigh on sterling and limit GBP/USD gains. It is worth mentioning that the UK Office for Budget Responsibility (OBR) now projects UK GDP to fall by 1.4% next year, compared to the 1.8% growth forecast in March. On the other hand, the worsening COVID-19 situation in China, coupled with geopolitical risks, should support the dollar and help cap the pair, at least for now.
There will be no major UK economic data release on Tuesday, leaving the GBP/USD pair at the mercy of dollar price dynamics. Later in the American session, traders will take the release of the Richmond US Manufacturing Index as a reference. This, along with Cleveland Fed President Loretta Mester’s scheduled speech, will boost demand for the USD and allow traders to take advantage of some short-term opportunities around the pair.
GBP/USD technical levels
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
