- GBP/USD gains positive traction on Monday and pulls away from a multi-week low.
- The recent drop in US bond yields keeps dollar bulls on the defensive and offers support for the pair.
- Expectations for an aggressive rate hike from the Fed and fears of a recession limit the pair’s gains.
The pair GBP/USD moves higher on the first day of a new week and builds on Friday’s late bounce from the 1.1975 region, or the lowest level since June 14. The pair maintains its modest gains at the start of the European session and is now trading near the daily high, just above the 1.2100 level.
The recent decline in yields The rise in US Treasuries kept dollar bulls on the defensive, which in turn offered some support to the GBP/USD pair. However, the incessant rumors around the Federal Reserve about rate hikes to curb rising inflation, coupled with the prevailing risk aversion feelingacted as a tailwind for the safe-haven US dollar.
In his speech at the ECB Forum in Sintra last Wednesday, the president of the Fed, Jerome Powell raised market expectations in favor of more aggressive rate hikes and said the US economy is well positioned to handle tighter monetary policy. Powell further added that the Fed remains focused on controlling inflation and that market prices are quite close to the dotted chart.
The Fed’s outlook added to the growing market concern that rapidly rising rates and tightening financial conditions will challenge global economic growth. Furthermore, the ongoing war between Russia and Ukraine and a new outbreak of COVID-19 in China have stoked fears of a potential recession and continued to weigh on investor sentiment.
Furthermore, the concern for the new tensions between the UK and the EU over the Northern Ireland Protocol of the Brexit deal should deter investors from opening bullish positions on sterling. Last week, the UK House of Commons voted in favor of a bill that would unilaterally nullify part of Britain’s divorce deal with the EU.
With US markets closed for the Independence Day celebration, the fundamental background warrants some caution for aggressive bulls. Therefore, it will be prudent to wait for strong continuation buying before confirming that the GBP/USD has formed a short-term bottom and positioning for any significant upside.
GBP/USD technical levels
Source: Fx Street
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